Chinese telecom giant Huawei saw its revenue fall in 2021 for the first time on record.
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BEIJING — Chinese telecom giant Huawei is turning to patents as a lifeline as the company tries to find a way forward in advanced chip technology — the valuable technology the US is trying to carve away from China.
In 2022, Huawei announced that it had signed more than 20 new or renewed license agreements for its patents. Most were with automakers for 4G and LTE wireless technology, the company said.
Mercedes Benz, Audi, BMW and at least one US automaker were among the licensees, said Alan Fan, Huawei’s global intellectual property head. He said he couldn’t tell which American company.
Huawei has more on the way – filing a record number of more than 11,000 patent applications in the US in 2022, according to IFI Claims Patent Services. Their analysis showed that, as a rule, just under half are admitted each year.
But the sheer number of patents filed meant that Huawei ranked fourth by the number of patents issued in the US last year, IFI said. Samsung was first, followed by IBM And TSMC.
“The US continues to be an important market that everyone wants to be a part of,” said IFI Executive Director Mike Baycroft. “They want to make sure they protect that IP as they develop these technologies [intellectual property] Rights for the US market for the European market.”
According to the IFI, Huawei’s US patents have grown the most in the past two years in areas related to image compression, digital information transmission, and wireless communication networks.
The US government blacklisted Huawei in 2018, restricting its ability to buy from American suppliers. By October 2022, the US made it clear that no Americans should work with Chinese companies on high-end semiconductor technology.
The potential of patents
Huawei’s revenue fell in 2021 for the first time on record, and the consumer division, which includes smartphones, reported a nearly 50% drop in sales to 243.4 billion yuan ($36.08 billion).
For Huawei, licensing its patents to other companies has the potential to recoup some of that revenue.
Alex Liang, a partner at Anjie & Broad in Beijing, pointed out that ceasing operations in certain business areas allows the company to realize patent revenues that previously existed mainly on paper.
“Huawei’s situation is similar to Nokia’s when the first-generation iPhone was launched,” Liang said. “Nokia quickly lost market share Apple and many of their patents no longer exist [had] licensed in exchange for other licenses to protect their phone business.”
Companies that share technical areas with Huawei… should all beware that a giant patent monetization player will jump into their respective pools and make a splash.
Partners, Anjie & Broad
Nokia made €1.59 billion ($1.73 billion) in revenue from patent licenses last year — about 6% of its total revenue. The company states that in 2022 it will have “signed over 50 new patent license agreements for our smartphones, automotive, consumer electronics and IoT [Internet of Things] Licensed Programs.”
Nokia and Huawei renewed their patent license agreement in December. Huawei also announced licensing agreements with South Korea’s Samsung and China’s Oppo.
“As far as I know, Huawei is aggressively pushing to monetize its patents,” Liang said.
“That’s one of the most important [key performance indicators] their IP department, although not the most important yet,” he said.
“Any other companies that share tech areas with Huawei — like telecom, phones, IoT, automobiles, PC, cloud services, etc. — should all be wary that a giant patent monetization player will jump into their respective pools and make a splash. “
Huawei pushed back on the idea of building a patent monetization business.
The company’s IP chief, Fan, said his department is “a corporate function, not a business unit” and passes royalties on to the research departments that filed the patents to fund further research.
“We actively support patent pools and similar platforms that license patents not only to us but to other innovators at the same time,” Fan said in a statement.
The company previously said it expects to generate $1.2 billion to $1.3 billion in revenue from licensing its intellectual property between 2019 and 2021. Huawei didn’t break down any specific numbers, only saying that it met its IP revenue expectations for 2021.
A company of this size would still account for a tiny fraction of the company’s overall sales. Huawei said in December that it expects revenue of 636.9 billion yuan in 2022, little changed from a year earlier. Cloud and connected cars are other business areas that the company wants to develop.
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Huawei has “been reeling since the decline of its cellphone business,” said Paul Triolo, senior vice president for China and technology policy lead at Albright Stonebridge Group. “I don’t think they had a choice to increase their royalty income.”
“The question is what are they doing for 6G [in] he said. “Are they still going to play a patent game? You can’t actually craft the gear. They’re kind of stuck if they can’t figure out the chip in terms of the future.”
Still, Huawei said it spent 22.4% of revenue on R&D in 2021, bringing the category’s total spend to more than $120 billion over the past decade.
Advances in chip technology?
Part of the research relates to semiconductor manufacturing. According to a release on the China Intellectual Property Administration website late last year, Huawei has applied for a patent in the highly specialized field of lithography technology used to manufacture advanced chips.
“It’s significant in the sense that every single piece of complicated technology like EUV [extreme ultraviolet] It’s not that difficult to make progress,” said Triolo. “To turn this into a large-scale commercial system that can boost commercial upside is a huge, huge task.”
Currently, the Netherlands-based company ASML is the only company in the world that can manufacture the extreme ultraviolet lithography machines required to manufacture advanced chips.
Not only did ASML take about 30 years to develop EUV itself, but the company had the advantage of having unlimited access to thousands of suppliers and international industry groups, Triolo said. “What China really lacks are these international consortia.”
But he didn’t rule out that China’s national champions could help Beijing build its semiconductor industry.
“Huawei has a very capable group of engineers,” said Triolo. It’s “probably a five to seven year process to build something commercially viable – only if all goes well, if there’s substantial funding.” The Chinese government will have to intervene here.”
Other Chinese companies are also investing resources in intellectual property.
The IFI ranking of global patent portfolios of companies and their subsidiaries featured a number of Chinese giants in the top 15, including the state research organization Chinese Academy of Sciences.
Home appliance companies Midea and Gree also ranked among South Korean and Japanese heavyweights globally, the data showed.
“The rise in Chinese innovation has long been evident,” said Baycroft, CEO of IFI. “Why shouldn’t we expect China to innovate like everyone else today? Like Japan, like Germany, everyone is in this game. It’s not just the US.”
— CNBC’s Arjun Kharpal contributed to this report.
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