(Yicai) Sept. 1 -- Record high investment in research and development along with rising component costs shrank Huawei Technologies’ profit by more than a third in the first half, leaving the Chinese technology giant’s profitability near the lower end of its recent historical range.

Net profit fell 36 percent to CNY23.8 billion (USD3.5 billion) in the six months ended June 30, the Shenzhen-based company said in an earnings report released through the Beijing Financial Assets Exchange website yesterday. Revenue rose 9.6 percent to CNY467.8 billion (USD69.6 billion).

R&D spending jumped 25 percent to CNY121.4 billion, the privately held company said, the equivalent of about 26 percent of revenue, up from around 22 percent in 2024 and 23 percent last year.

Huawei has long been among the world’s biggest corporate R&D spenders, and the latest figure suggests the company is spending at an even faster pace to achieve self-reliance in semiconductors and other technologies. Its higher R&D spend also coincides with surging component prices, as the global buildout of artificial intelligence data centers drives up demand for memory chips amid tight supply.

“Higher prices for components such as memory chips have weighed on profits, while the steep increase in R&D outlay has directly squeezed short‑term earnings,” a source close to Huawei told Yicai.

Under the firm’s technical roadmap, Huawei said it has designed and mass‑produced (through third-party foundries) 381 chip models over the past six years. The Kirin 2026, built on Huawei’s LogicFolding architecture, will debut this fall, with high‑end chips built on the new approach expected to deliver transistor density on par with the 1.4‑nanometer process by 2031, it added.

Companies that deliver system design innovations stand a chance of outperforming rivals that rely on pricier cutting-edge manufacturing processes, a chip sector veteran told Yicai. This opens new opportunities for firms with robust system‑integration capabilities, with a host of Chinese startups working on Chiplet designs and advanced packaging solutions, the person pointed out.

Huawei seeks to achieve equivalent performance through innovations in architecture and algorithms despite lacking access to state‑of‑the‑art lithography machines, but this cannot substitute for breakthroughs in underlying hardware technologies, an industry observer added.

Chinese and foreign chip developers operate under vastly different conditions, with those overseas able to tap into cutting‑edge manufacturing capacity from foundries such as Taiwan Semiconductor Manufacturing and Samsung Electronics, while domestic firms still depend on achieving simultaneous breakthroughs in software and hardware, the person noted.

China’s smartphone shipments fell 4.3 percent to about 66 million units in the second quarter from a year earlier, according to data from global market intelligence and advisory firm International Data Corporation. Huawei’s shipments jumped 19 percent, securing the top position in the Chinese market with a 23 percent share.

Editor: Martin Kadiev