Huawei's Ren urges profits over growth as prospects dimHuawei's Ren urges profits over growth as prospects dim
Huawei's business has contracted since 2019, when the US slapped on export bans and pushed other nations to exclude the company from 5G contracts.
August 25, 2022
Huawei faces a crisis over the next three years and must focus on survival rather than growth, CEO Ren Zhengfei has warned.
In an internal memo that has lit up Chinese social media, the 77-year-old founder and ex-PLA officer said the company had to wind back its "overly optimistic expectations" and target profitability and cash flow instead of scale.
Ren said the next ten years would be "very painful" as the global economy contracts.
Figure 1: Despite the bleak language in the memo, Huawei CEO Ren Zhengfei gives no hint of taking an axe to any of Huawei's businesses just yet.
"Now, due to the impact of the war and the continued blockade and suppression by the United States, the world's economy will not turn for the better in the next three to five years. Coupled with the impact of the epidemic, there will be no region in the world that is a bright spot," he wrote.
"Under such circumstances, Huawei's overly optimistic expectations about the future will be lowered. In 2023 or even 2025, we must take survival as the main program."
The company needs to find a way through the next three years, he urged.
"We need to adjust the point of survival to focus on cash flow and real profits, not just sales revenue. The first thing to do is to survive, and if you survive, you will have a future."
He warned that "peripheral" businesses that don't generate value in the next few years should be reduced or closed.
Business continually shrinking
Huawei's business has continually contracted since 2019 when the US slapped bans on the exporting of key components and technologies. US pressure has also led to the exclusion of Huawei from 5G contracts in most western economies.
Revenue has fallen by a third since 2020, its interim result earlier this month revealed (see Huawei shrinks further despite enterprise gains).
Ren's folksy letters to Huawei staff are routinely leaked but rarely attract much attention outside tech media and social media.
This latest is a hugely viral exception – most likely not just because of respect for Ren or patriotic support for Huawei, but because it also reflects China's growing economic gloom.
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As the Pekingology blog put it: "China's economy fell 2.6% in the second quarter from the previous quarter. One in every five people aged 16-24 is without a job. The real estate industry, estimated to account for from 13% to 30% percent of the GDP, is in deep trouble. It is apparently against the background that Ren's reportedly dire warnings struck a nerve here."
Despite the bleak language in the memo, Ren gives no hint of taking an ax to any of Huawei's businesses just yet.
He affirmed the role of new growth drivers such as the cloud, digital energy and smart car solutions. He also gave a shout out to R&D, whose funding has remained steady despite the plunge in revenue, which he stressed was essential for maintaining product quality.
But it might be significant that he didn't mention the device business, which has been hit hardest by US sanctions, as exemplified by its new 4G-only flagship M50 handset, set for launch in two weeks.
— Robert Clark, contributing editor, special to Light Reading
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