Huawei Technologies Co’s profit plunged 46% in the first quarter while revenue barely grew, as the Chinese telecom equipment maker spent heavily on research to try and get around US technology sanctions.

Net income dived to 3 billion yuan (US$434 million) in 2023’s first three months, according to Bloomberg News calculations based on the 2.3% profit margin it announced Friday. That followed Huawei’s first annual profit decline in more than a decade, as years of US sanctions obliterated a once-thriving smartphone arm that competed with Apple Inc and Samsung Electronics Co.

Huawei executives pledged to keep its R&D investment high to stay competitive in the market. The Shenzhen-based company earlier disclosed 2022 research spending of 161.5 billion yuan, or roughly a quarter of its annual sales.

Huawei has made some progress in developing alternatives to US technology, including chip design tools and business software it can no longer buy from American suppliers such as Synopsys Inc and Oracle Corp. Calling 2023 a “crucial year” for Huawei’s survival, the company expects to pursue more technology breakthroughs while tapping emerging demand from new markets such as ports and industry parks.

Sales edged up 0.8% to 132.1 billion yuan in the first quarter, the first quarterly increase in three years.

Longer-term, Huawei remains vulnerable to US-Chinese tensions. Washington has imposed a series of restrictions on the country’s tech industry, including blacklisting companies such as Huawei and Semiconductor Manufacturing International Corp that are perceived as national champions.

The US has also implemented strict controls on the export of chips and chipmaking equipment to China, effectively barring the world’s biggest contract chipmaker, Taiwan Semiconductor Manufacturing Co, from making cutting-edge silicon for Chinese clients such as Huawei.

  - Bloomberg