Research on Impact of Macroeconomic Fluctuations on the Profitability of China’s Huawei

College of Social Sciences, Business School, Glasgow, Scotland, G12 8QQ, British

^* Corresponding author: 2969240Z@student.gla.ac.uk

Abstract

This paper categorizes Huawei’s American suppliers into two types based on the proportion of revenue they derive from Huawei. The first type consists of US suppliers with a low dependency on Huawei and are less affected by the trade war and Huawei bans. The second type includes US suppliers with a high dependency on Huawei, where Huawei is a major customer, and a significant portion of their annual procurement amount constitutes a large share of their revenue. Any reduction or cessation of orders from Huawei drastically reduces these suppliers’ revenue, impacting their operational performance significantly. The paper then focuses on New Photonics, a US supplier with nearly half of its annual revenue from Huawei, to analyze the adverse effects of the US-China trade war on its performance. Firstly, after Huawei was listed on the Entity List, Huawei’s share dropped nearly 15%, and the company’s ability to collect payments from this major customer also deteriorated. Secondly, Huawei’s orders were ceased due to the US-China trade war. Subsequently, event studies revealed that US-China trade negotiations and the Entity List incident had positive and negative impacts on New Photonics’ market performance, respectively. Finally, the US-China trade war filled the Chinese market with uncertainties. The company’s ratio of revolving loans decreased significantly, which also impacted the company’s investment behavior and capital utilization efficiency. To cope with the US-China trade war, New Photonics adjusted its business strategies by enhancing product R&D, strengthening cost control, and transforming financing methods.