COVID-19 “macroeconomic and supply chain challenges” sent HP Q2 revenue down 11% to $12.5 billion, said CEO Enrique Lores on a Wednesday investor call. “While some areas performed very well as people shifted to work from home, others suffered, and we faced supply chain disruptions.” The quarter ended April 30. Though the Chinese production that was shut down after the Lunar New Year began to “ramp” in late February, “we also experienced disruptions to operations in Southeast Asia and other parts of the world as the pandemic spread,” said Lores. Production was “largely back to full capacity” by early May, he said. Higher PC demand, combined with supply chain disruptions, “resulted in an elevated backlog, which we expect to work down during Q3," he said. “Manufacturing disruptions” prevented the company from keeping pace with the spike in consumer orders for “hardware and ink supplies,” said Lores. Consumer revenue in the quarter declined 16%, said Chief Financial Officer Steve Fieler. The stock closed 12% lower Thursday at $15.01.
Apple’s iPhone 11, starting at $699, surpassed the iPhone XR ($599) in global shipments in Q1, said Omdia Tuesday (login required). Apple shipped 19.5 million iPhone 11s, outpacing the iPhone XR a year ago by nearly 6 million units, it said. The iPhone 11 has two cameras, a “major upgrade” from the single-lens XR, that’s “extremely appealing” to consumers, said analyst Jusy Hong. Samsung was second with the Galaxy A51, shipping 6.8 million units. Xiaomi took third and fourth with Redmi Note 8 (6.6 million) and Redmi Note 8 Pro (6.1 million units). The three companies had all top 10 models. Among 5G smartphones, Samsung led global shipments with 3.5 million for the S20+ 5G, and came in fourth and fifth with the S20 5G (2.9 million) and S20 Ultra 5G (2.7 million). Huawei finished second and third in 5G shipments. Annual smartphone shipments will shrink this year due to the COVID-19 pandemic, slowing the pace of 5G expansion, said Omdia. An exception is China where the smartphone market has been “recovering rapidly” since March.
Amazon announced solar projects in Australia, China, Ohio and Virginia as part of a goal to reach 80% renewable energy by 2024, 100% by 2030, it said Thursday. The five new projects will supply about 615 MW and an expected 1.2 million MWh annually to Amazon’s fulfillment network and Amazon Web Services data centers, it said.
Lenovo’s PC manufacturing in China was one of the first in the industry to “resume full production” after the COVID-19 pandemic and achieved “daily, weekly and monthly production records in March,” said CEO Yang Yuanqing on a quarterly call Tuesday. “This helped us meet the strong PC demand, driven by work from home and study at home due to the lockdown.” Lenovo’s PC volume for the year “outgrew the market” by more than 4 percentage points, helped by an 18% sales volume increase in North America, he said. The “clear trend” during global shelter-in-place orders is toward “one PC per person” from one or two per family, said Chief Operating Officer Gianfranco Lanci. “This is going to last,” because people “will continue to work from home even after the crisis,” he said.
Though the tech sector is “not immune to the turbulent operating environment” of COVID-19, technology will be “what modifies the current weakness and drives new demand and business models post-pandemic,” said Analog Devices CEO Vincent Roche on a quarterly call Wednesday. Capacity was reduced at the chipmaker’s “back-end test and assembly sites” in the Philippines, Malaysia and Singapore when shelter-in-place mandates were ordered in mid-March, he said. “Once granted essential status, we acted quickly, yet responsibly, to ensure employee safety and improve our capacity.” The factories are running at “normal capacity levels” again, said Roche. “Post-pandemic supply chains will be reimagined and new ones will be built” that are more “flexible” and automated, he said. The stock closed up 7.8% at $114.57.
COVID-19 disruptions in the Chinese supply chain caught some U.S. importers off guard, Microsoft’s top logistics point man told an IHS Markit webinar. The vast majority of them had an “urgent, knee-jerk reaction,” said David Warrick, Microsoft general manager-global supply chain. “Most companies were not actually prepared for the size, scale or longevity” of the pandemic, he said Tuesday. It’s extremely difficult to navigate through the crisis “if you don’t have the visibility in the first instance,” said Warrick. “You have to understand what’s going on to be able to impact it and affect it.” Many companies before the pandemic shied away from building “visibility tools” into their supply chains because they feared “an enterprise-level investment,” said Warrick. “It feels like it’s millions of dollars that has to be done for a multiyear plan to be able to bring this type of technology to the fore.” But, such tracking is available in a “plug-and-play” fashion and can be installed as an “overlay” on existing supply chain “infrastructure,” said Warrick.
China promised countermeasures to respond to increased U.S. restrictions against Huawei, slamming “abuse of export controls” and violation of international trade laws. License requirements on shipments to Huawei for foreign-made chips containing U.S. content (see 2005180018) are a “serious threat” to China’s chip industry, China’s Commerce Ministry said Sunday, per an unofficial translation. State media said China is considering placing U.S. companies on its unreliable entity list. The rule will “complicate” operations for communication equipment manufacturers and could lead to drops in revenue and R&D efforts, emailed a U.S.-China Business Council spokesperson. “More transactions will require export licenses, adding additional expense and delays with no guarantee that licenses will be granted.” Chinese companies “of course would very much like to ... indigenize all aspects of the supply chain,” said Keith Krach, State Department undersecretary-economic growth, to reporters last week. “But at least for the moment … U.S. companies still have a very significant comparative advantage when it comes to the largely software-facilitated design tools that are involved in producing the very best chips.” National Foreign Trade Council Vice President Richard Sawaya said the rule falls short of industry’s worst fears, and members “realize that national security-related technology controls are warranted.” He said industry would have appreciated more transparency as the rules were being considered and a comment period. “That’s really what industry is asking for,” Sawaya told us: “Due process.” Monday, Huawei criticized the increased restrictions, saying they “ignore the concerns of many companies and industry associations.” It said the rule will “undermine” the global semiconductor industry. “The U.S. is leveraging its own technological strengths to crush companies outside its own borders,” the company said. Huawei’s rotating chairman, Guo Ping, said he's “confident” the company will work around the curbs. “Our experience over the past year has made us confident that we can find a solution, that our customers and suppliers can continue to stand with us and minimize the impact of this discriminatory rule,” he said. Sen. Ben Sasse, R-Neb., called the rule “long overdue.” The U.S. “needs to strangle Huawei,” Sasse said. “Modern wars are fought with semiconductors, and we were letting Huawei use our American designs.”
The threat from Huawei is real and the Chinese company holds a commanding position “in the competition for baseline 5G equipment,” American Enterprise Institute's Claude Barfield blogged Monday. Last year, Huawei’s revenue topped $120 billion, “more than double that of Ericsson and Nokia combined,” he said. For years, Huawei has invested 20% percent of revenue in R&D, Barfield said: “After being exposed for a major theft of intellectual property from Cisco in 2003, the company built a large patent portfolio." Chinese companies are "working to bend the international 5G standards process to their interests,” he wrote: The emergence of open radio access networks won’t erase the importance of equipment makers. Huawei didn't comment.
The Commerce Department announced increased restrictions on foreign-made chips exported to and made by Huawei. The department said Friday it doesn't expect to issue another temporary general license extension for the Chinese telecom gearmaker after its latest 90-day renewal expires Aug. 13. The agency is amending the direct product rule to apply restrictions to foreign-produced semiconductor designs and items, such as chipsets, that are direct products of controlled U.S. software and technology, and will require a license when the exporter has “knowledge” that the item’s destination is Huawei. To mitigate impact on the industry, Commerce said the rule change won't affect foreign-produced items as long as they're re-exported, exported from abroad or transferred within 120 days from the rule’s effective date. The company didn't comment.
The U.S. Export-Import Bank focused on 5G during a teleconference Thursday, part of its “Strengthening American Competitiveness” initiative. Chair Kimberly Reed said EXIM’s goal is that at least $27 billion of the bank’s funds be dedicated to exports that compete directly with China. “For us to be successful … it’s going to be critical for us to achieve tangible results in the form of completed deals that help specific businesses here in America generate exports and support U.S. jobs,” said Senior Vice President-Program on China and Transformational Exports David Trulio: “Economic security is national security.” There's “no more important strategic technology race than the race to establish secure 5G,” said James Jones, former U.S. national security adviser, now at the Jones Group International. 5G “underpins” all the major technologies of the future, including artificial intelligence, robotics, quantum computing and biotechnology, Jones said. “The consequences” of losing “are much larger and geopolitical in nature” and will determine what the world will look like, he said. China’s goals are “to subsidize, to win market entry and leverage geopolitical gain,” he said: “The strategy is being demonstrated all over the world as one of penetration, expansion and domination.” The U.S. can’t get other countries to not buy 5G technology from China without offering an alternative, he said. Samsung is based in South Korea but has a strong presence in the U.S., with many jobs here, said Terry Halvorsen, chief information officer-information technology and mobile communications. “Today, the world works in partnerships, and strong ally partnerships, strong business partnerships are needed to do well,” he said. “5G is going to play an amazing role in the new economy, particularly as we look at what the new world order is becoming with more mobile workers, more social distancing,” he said: The U.S. will need “trusted partners.” Juniper Networks has found that the pricing of Chinese 5G gear and the financing provided are “far more aggressive than what a U.S. publicly traded company can provide,” said Michael Liebsch, managing director-Juniper Financial Services. “We have to partner” to provide “a full end-to-end solution” and then figure how to provide financing versus one of the Chinese competitors, he said. Security underpins every other concern, said Quinn Bottum, Swoop Search chief technology officer. Companies are spending billions of dollars on security, but a hacker can spend thousands and take a system down, he said: “To really bring the value out of 5G, we have to solve that inflection point of security.” The goal is to not have U.S. companies lose deals based on foreign financing, Trulio said: “We want them to compete on a level playing field based on the quality of their products and services and financing should not that ends the deal in terms of who wins and loses.” The Chinese Embassy didn’t comment.