/ Huawei sacrifices margins to chase chip self-reliance.
Liam Ortiz is a tech journalist who covers AI related big tech and breaking news at TheTweaks. Before joining TheTweaks he worked for almost four years in corporate and national tech news in different companies. Few are quick but Liam is quicker, he breaks news before anyone else and that makes her special. His passion is somewhere connected with profession as his hobby is watching documentary movies.
Huawei has announced one of its worst profit results in recent history, and it’s not due to falling revenues. In fact, it’s the other way around. In the first six months of 2026, Huawei has reported a 36% year over year drop in its net profit to about 23.81 billion yuan (about $3.54 billion). As compared to 2025, when the same figure was down by 32%, that means that Huawei is facing a worsening trend here (Reuters).
The catch in all this is that revenue rose by 9.6% to 467.82 billion yuan. It’s not that Huawei is struggling to sell products or services, it’s that it’s struggling to retain what it sells.
Two forces are eating into Huawei’s bottom line.
First, research and development spending jumped 25% to 121.38 billion yuan, meaning almost 26% of total revenue is now being invested in R&D. To put it in perspective, companies like tech firms find anything beyond 15-20% aggressive. Huawei is investing that money into its automotive business, smart devices, communications technology, chip development and AI computing.
Second, the price of memory chips has been on the rise, pushing up the cost of input materials for the entire industry and Huawei’s consumer business including smartphones is not an exception.
If the cost of the components increases, and you’re also increasing your R&D, then you’re adversely affecting your margins in two ways.
All this is deliberate and purposeful. Huawei has been attempting to wean itself of its reliance on overseas chip makers and software for the last few years, partly as a reaction to U.S. export restrictions that once had a significant impact on the company’s revenue, with revenue dropping by nearly 29% in 2021 when the restrictions were at a peak.
Huawei has recovered from that since. The revenue increased by 2.2 percent to 880.9 billion yuan, the second-highest year in history, after 891 billion yuan in 2020.
The company has been increasingly focused on AI-powered telecom equipment, new computing hardware, smart-driving solutions, and new phones, tablets, and wearables in China and overseas markets this year.
In this report, Huawei did not disclose the results of its various businesses individually, but did indicate that all businesses on the company’s balance sheet increased year-over-year. That’s a positive indicator that growth is across, rather than coming from one division.
According to Huawei, this profit decline is in line with its own half year expectations, meaning it probably was not unexpected but a carefully considered trade-off. So, it isn’t all smooth sailing ahead. Huawei said its full year forecast is still being reviewed due to external factors and continued input price pressures.
That is, do not hope for any recovery of margins in the short term. As long as Huawei continues to spend at this rate on R&D in the second half of the year, additional revenue headwinds appear to be in the offing, despite the continued growth in revenue.
It’s not necessarily a bad sign when Huawei is losing money, but rather the price of deliberate action. The company’s decision to make a long-term bet on self-reliance in chips, AI infrastructure, and smart devices over short term margins suggests that the underlying business is healthy, as evidenced by its revenue growth.
The next big question for the remainder of 2026 will be whether such investment in R&D translates into products that can offer a competitive edge over the products from competitors around the world or Huawei simply gets stuck in a vicious cycle of declining profits as it pursues chip independence.
It is either a company that is betting on the future or it is a company that wants to stick with its existing margins; either way, it’s something that’s worth keeping an eye on.
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