Numbers Show Joke Is on the US, Not Huawei

US ban lit a fire under Huawei, awash in cash, and its bonds trading at a premium

Unlisted Chinese telecommunications giant Huawei Technologies was made an international pariah by US regulators earlier this year after a ban on buying key parts and on access to crucial markets.

You think that sounded the death knell for the company? Think again.

This week, Huawei announced a US$286 million bonuses bonanza to its employees. Its bonds continue to trade above par, and its cash balances are massive. Hardly the signs of a company struggling under sanctions.

The company has repeatedly denied US allegations that it is a front for the Chinese government – the justification Washington cited for banning US companies from using Huawei-manufactured gear.

Huawei is the world’s biggest telecom equipment maker and it’s the second biggest smartphone maker.

According to data from International Data Corporation, smartphone shipments in the July-September quarter rose 18.6% to 66.6 million, just behind global leader Samsung’s 78.2 million.

“Huawei has been gaining market share in China and overseas despite US trade war frictions and may become the leading smartphone maker in the next two quarters,” said Nitin Soni, director of corporate ratings at Fitch Ratings.

He said telcos across emerging markets, which are facing capital expenditure pressures and limited 5G business viability in the short term, may be willing to buy Huawei’s 5G equipment given it is cheaper and has better technology than European counterparts.

It’s not just Soni. Industry leaders also acknowledge Huawei’s quality standards.

Indian telco Bharti Enterprises’ chairman Sunil Mittal said recently, for example, “I can safely say their products in 3G and 4G that we have experienced are significantly superior to Ericsson and Nokia. I use all three of them.”

Indeed, the bond-market performance of the unrated, unlisted company confirms Huawei’s strength. Its dollar-denominated bonds traded in global markets are changing hands at above par, indicating bond investors are confident about the company’s cash position and liquidity situation.

Its bonds due 2025, which pay a coupon of 4.125%, are trading at a price of $104 while the holder would only get $100 at maturity. The premium would be compensated by the annual coupon, which would reduce the yield. The bonds are currently yielding 3.4% compared with the 4.25% yield at the time of the issuance. In price terms the bonds have rallied from $99 in 2015 to $104. Prices move inversely to yields.

The financial highlights also betray no signs of weakness. The company has a cash hoard of $39 billion and generates $10 billion from operations each year.

So, in fact, the US ban on Huawei may be helping the company.

“A ban on US companies such as Google to supply software to Huawei may lead to faster innovation by Huawei to develop its own operating system and chips,” said Soni.

Source: Asia Times

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