Shares in NetEase Slide After Partnership With Huawei on 5G Gaming

The partnership between China's tech giants comes at a time when Huawei is increasingly shut out of global markets.

Author: Belinda Zhou   

NetEase Inc. (Nasdaq: NTES) announced Tuesday that, together with company non grata Huawei Technologies Co. Ltd., it will work on the development of a 5G cloud gaming lab. 

China's online gaming and telecom giants are partnering up to provide cloud gaming service via Huawei Wireless X Labs and NetEase Leihuo gaming unit, according to the companies' official statement.

In response to the news, the stock in NetEase dropped 3 percent to $254.28 per American depositary share intraday in New York. 

The newly established gaming lab is committed to conducting research on the industry standards, 5G network compatibility, 5G game experience, and cross-platform test, according to the signed memorandum. Huawei and NetEase are planning to jointly deploy new games to the cloud across different platforms.

"As 4G promotes mobile gaming, 5G encourages cloud games with ultra-high bandwidth, ultra-low latency, etc.," Honghua Peng, the chief marketing officer of Huawei's wireless network unit, said at the opening ceremony, as reported by Chinese news outlet Jiemian.

"Cloud gaming will bring another golden era for online computer gaming in competition with mobile gaming because of its dramatically expanded playability and quality," Zhipeng Hu, the vice president of NetEase and head of NetEase Leihuo, said.

The partnership came at a time when Huawei has confronted challenges in the United States and globally. Last month, Washington placed the giant on a blacklist, shunning it from the U.S. market and claiming its 5G technology posed a threat to national security.

This week, the Trump administration has been considering to require 5G cellular equipment used in the U.S. to be designed and manufactured outside China, as reported by the Wall Street Journal.

A key player in China's gaming industry, NetEase's online game service has been thriving. In the first quarter, revenue from the sector grew 35 percent year-over-year and contributed 65 percent of NetEase's total revenue. Of that, revenue from mobile games accounted for approximately 72 percent of revenues from online game services.