Huawei closes in on record revenue, but at a cost

(By Caixin journalist Gu Zhaowei)

Huawei Technologies Co. Ltd. is on track to surpass its record annual revenue this year, a remarkable comeback for the Chinese technology giant as heavy investments in AI and its homegrown operating system begin to pay off.

The company generated 467.8 billion RMB (US$70 billion) in revenue in the first half of 2026, up 9.6% from a year earlier, putting it on course to surpass 900 billion RMB in annual sales for the first time, according to market estimates. That would eclipse its previous record of 891.4 billion RMB set in 2020, before US sanctions dealt a heavy blow to its smartphone and telecommunications businesses.

Huawei’s recovery has come at a steep cost. Since 2021, the company has spent more than 20% of annual revenue on research and development, with that share rising to 25.9%, or about 121.4 billion RMB, in the first half of 2026. Net profit attributable to shareholders fell more than 30% to 23.4 billion RMB during the period.

The investments are helping Huawei transform itself from a maker of telecommunications equipment and smartphones into an increasingly integrated technology company spanning AI chips, computing infrastructure, cloud services, operating systems and energy systems.

But its resurgence remains heavily dependent on China, where government efforts to build domestic technology supply chains have created opportunities. Overseas, Huawei continues to face US restrictions, European security concerns and formidable competition.

AI as a growth engine

Huawei’s most consequential shift is taking place in AI computing, where its Ascend processors and large-scale computing systems are emerging as alternatives to Nvidia Corp.’s dominant products.

In the first half of 2026, Huawei shipped 572,000 AI chips in China, capturing 28% of the market, second only to Nvidia’s 34%, according to research firm IDC. This year, Huawei’s computing business research spending exceeded that of its wireless business for the first time.

Unable to access the most advanced semiconductor manufacturing technologies, Huawei has pursued a different strategy by introducing SuperPoDs, connecting large numbers of less powerful chips through high-speed links to build computing systems capable of handling demanding AI workloads.

Its Atlas 900 A3 system, launched in 2025, connects 384 Ascend 910C processors. By September 2026, more than 1,000 units had been deployed, according to Wang Tao, Huawei’s rotating chairman. Another system supporting up to 1,024 Ascend 950 chips has entered commercial use, with 165 installations, Caixin has learned.

The SuperPoDs systems can cost more than 100 million RMB apiece. Given the high cost, they are aimed more at strengthening China’s technological self-reliance in computing infrastructure than at generating immediate commercial returns, one executive at a data centre told Caixin. Yet, he said commercial applications would naturally follow if Huawei continued pursuing this approach.

Huawei is already securing customers. DeepSeek, ByteDance Ltd. and Meituan have purchased different versions of its computing systems.

DeepSeek, which has relied heavily on Nvidia chips for model training, began working with Huawei in September 2024 to adapt its R1 model to Ascend infrastructure. In September 2026, it released open-source infrastructure components for Huawei’s platform, including programming tools and computing libraries, to make the technology easier to adopt.

A person close to DeepSeek told Caixin that the AI developer has informed prospective investors of plans to use Huawei’s systems for future model training.

Huawei is preparing even larger configurations. Its planned Ascend 960 system, expected in 2027, will connect as many as 4,096 chips and deliver a theoretical 16 exaflops of computing power at FP4 precision. That compares with 1.44 exaflops for Nvidia’s GB300 NVL72 system, although the Huawei configuration uses substantially more chips.

The approach carries technical and commercial risks. Larger systems are more complicated to maintain, and their economics depend on whether AI developers need computing clusters of such scale.

Huang Xiangjun, vice president of R&D at Chinese chipmaker MetaX Integrated Circuits (Shanghai) Co. Ltd., previously told Caixin that bigger systems are not necessarily better. As systems expand, failure rates and per-chip design costs rise, while much smaller configurations can already handle significant AI inference workloads.

Huawei also faces production constraints. The data centre executive told Caixin that the company has shown no sign of prioritising AI processors over smartphone chips, which remain a major business. “The key in the future may not be how hard we push, but how much we can supply,” said Huawei’s rotating chairman Xu Zhijun, calling for faster expansion of domestic semiconductor production.

Another challenge is software. Huawei has traditionally developed tightly controlled telecommunications systems, while AI developers often demand greater access to underlying hardware and programming tools. “Internet companies are stronger than us in this area,” Xu acknowledged, saying some customers want Huawei to open its chip architecture so they can optimise performance themselves.

Huawei has consequently settled on an AI strategy centred on computing hardware supported by a more open software ecosystem.

That could also help compensate for its weaker position in AI models. A former employee of Huawei’s Pangu large-model team told Caixin that the company has fallen behind leading developers of large language models, but still has opportunities in industry-specific AI applications.

A critical threshold

Huawei’s second major technology bet is HarmonyOS, the operating system developed to reduce its dependence on Google’s Android ecosystem.

The number of devices running its native HarmonyOS platform is expected to exceed 100 million by the end of 2026, a milestone Huawei considers essential to establishing a commercially viable alternative to Android and Apple’s iOS.

HarmonyOS devices held 24% of China’s smartphone operating-system market by sales in the second quarter, up seven percentage points from a year earlier, according to Counterpoint Research. Its global share reached 5%.

The progress represents a significant turnaround from 2024, when Huawei introduced a native version of HarmonyOS that abandoned compatibility with Android applications.

The decision forced developers to build and maintain separate versions of their software, creating a substantial obstacle in a market already dominated by Android and iOS.

Huawei responded with subsidies, developer training and partnerships with universities. In 2024, the company pledged to invest more than 6 billion RMB annually to support developers. In 2025, it launched a further 1 billion RMB incentive programme.

In June, Huawei introduced AI coding tools that can generate, debug and optimise software through natural-language instructions.

Short-video platform Kuaishou said AI generated 80% of the code during its HarmonyOS development process, helping improve overall development productivity by 70%.

One independent developer told Caixin that a three-person team could maintain more than ten applications using Huawei’s free AI coding tools, helping the business double revenue in the first half.

Huawei said the number of registered HarmonyOS developers had reached 11 million by September, an increase of 1 million from December 2025.

The company believes 100 million users will provide the scale needed to sustain developers without continued heavy subsidies. “With 100 million users, developers have the foundation to establish a viable business model, allowing the ecosystem to enter a virtuous cycle,” Xu said.

Huawei is also extending its technology beyond smartphones through OpenHarmony, an open-source operating-system project supported by the OpenAtom Foundation, a nonprofit.

Elusive overseas growth

Huawei’s domestic progress contrasts with its continuing difficulties abroad.

Overseas markets accounted for 48.4% of Huawei’s revenue in 2018, before US restrictions sharply curtailed its international smartphone and telecommunications businesses. By 2025, that share had fallen to roughly 30%.

Yet international markets are once again becoming important sources of growth. About 95% of Huawei’s additional revenue in 2025 came from overseas, as sales in China grew just 0.2%, compared with 30.5% in 2024.

Huawei’s established telecommunications business continues to benefit from upgrades to existing networks and 5G deployments in emerging markets. But Europe remains a major source of uncertainty.

In January 2026, the European Commission proposed cybersecurity legislation that would require telecom operators to phase out equipment from designated high-risk suppliers in critical network infrastructure within 36 months.

Germany has already agreed with major operators to remove key Huawei and ZTE Corp. components from their 5G core networks by the end of 2026, followed by certain network-management functions in access and transport networks by 2029.

Huawei also faces a difficult path back into international smartphones.

The company’s smartphone shipments were broadly flat in 2025, accounting for about 4% of the global market, according to Counterpoint Research senior analyst Shilpi Jain. China represented 94% of those shipments.

The absence of Google Mobile Services and popular international applications remains a significant obstacle to expanding HarmonyOS overseas.

Xu said in August that HarmonyOS had established a foothold in China, but international expansion and AI capabilities would be the next major tests. “The true sign of success for a new ecosystem is its ability to go global and secure a place in international markets,” he said.

Yet, geopolitical restrictions continue to spread beyond telecommunications.

On 13 October, new US Federal Communications Commission rules took effect extending equipment-authorisation restrictions to products containing certain components from companies on its restricted list, including Huawei.

Nine days later, US authorities denied certification to a dashboard camera and a wireless video transmitter because they contained Huawei’s HiSilicon chips.

This article was first published by Caixin Global as “In Depth: Huawei Closes In on Record Revenue, but at a Cost”. Caixin Global is one of the most respected sources for macroeconomic, financial and business news and information about China.

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