Huawei Technologies reported a 36% decline in first-half net profit on Monday, as sharply higher production costs and a major increase in research and development spending outweighed stronger revenue, highlighting the growing financial burden of the Chinese technology giant’s push to build a self-reliant AI and semiconductor ecosystem.
The Shenzhen-based company said net profit for the six months ended June fell to 23.81 billion yuan ($3.54 billion), compared with a 32% decline in the same period last year. Revenue, however, rose 9.6% to 467.82 billion yuan as Huawei continued to rebuild its businesses after years of U.S. sanctions and export restrictions.
The results show that Huawei is generating substantial top-line growth while sacrificing a larger portion of its revenue to technology development and production. Its costs are rising faster than sales, putting pressure on margins at a time when the company is committing heavily to some of the most capital-intensive areas of the technology industry.
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Research and development spending jumped 25.2% to 121.38 billion yuan in the first half, equivalent to 25.9% of revenue. The spending reflects Huawei’s efforts to advance artificial intelligence, communications technology, computing, smart devices and intelligent automotive systems.
The company’s cost of products increased 12.4%, outpacing its 9.6% revenue growth, while administrative expenses also climbed significantly.
Huawei said the first-half performance was in line with its internal expectations, but left its full-year outlook under review because of external uncertainties and rising input costs.
The pressure on profitability comes as Huawei attempts to turn the restrictions imposed by Washington into an incentive to develop domestic alternatives. U.S. export controls have limited the company’s access to advanced semiconductors and other technologies, while earlier sanctions contributed to a 29% decline in Huawei’s annual revenue in 2021.
Since then, Huawei has poured resources into developing its own chip, software and AI computing capabilities, while expanding into areas including electric vehicles, cloud computing and consumer electronics. The strategy has helped restore revenue. Huawei’s 2025 revenue increased 2.2% to 880.9 billion yuan, its second-highest annual level, behind the 891 billion yuan recorded in 2020.
The company has continued expanding its AI-related telecoms products and computing hardware this year, while developing smart-driving technology and launching new smartphones, tablets and wearable devices in China and overseas.
Huawei did not provide a breakdown of first-half revenue by business. It said, however, that all of its business divisions recorded year-on-year revenue growth.
The cost of that expansion is becoming increasingly visible in Huawei’s cash position and inventories. Cash used in day-to-day operations reached 39.88 billion yuan in the first half, compared with cash generation of 31.18 billion yuan a year earlier.
Spending on goods and services increased substantially faster than cash received from customers, while inventories jumped 42% from the end of 2025. The build-up could indicate that Huawei is preparing for stronger demand, but it also ties up cash and increases the financial risk of holding components and finished products in a volatile technology market.
Huawei attributed part of the profitability pressure to higher R&D spending and changes in its business mix.
Rising memory prices are also affecting its consumer electronics operations, particularly smartphones. That creates an additional challenge for Huawei because the company is simultaneously trying to expand its hardware presence and absorb higher component costs without passing the full increase on to customers.
The financial pressure illustrates a broader challenge facing Chinese technology companies operating under U.S. restrictions. Building domestic substitutes for advanced foreign technology requires sustained investment, but those investments can take years to generate returns and may initially depress profitability.
Huawei is seeking to strengthen its position across the computing stack, from chips and processors to networking equipment and software, at a time when China is pushing to reduce its dependence on U.S.-controlled technology. These make the stakes high.
While the strategy could give Huawei greater control over its supply chain over the longer term, the first-half figures show that technological self-reliance comes with substantial near-term costs.
The company is also facing continuing legal and geopolitical risks in the United States. Its filing disclosed a U.S. court date next week in a case involving allegations of bank fraud and sanctions violations. A separate case concerning alleged theft of T-Mobile trade secrets is scheduled for trial in October next year.
Huawei has denied wrongdoing in the various U.S. cases.
The combination of rising revenue and falling profit leaves Huawei at an important point in its post-sanctions recovery. The company is expanding across AI, chips, telecommunications, consumer devices and automotive technology, but translating that expansion into sustainable profit growth will depend on its ability to eventually offset higher investment and input costs by scale.