Huawei Founder Changes Priorities
The founder of China’s largest telecommunications company Huawei (pvt) is usually optimistic about the future of his company and the prospects for global technology, although having been in the sights of the US government’s trade war with China have made an impact on the founder’s positivity as those trade restrictions forced the company to move away from its more traditional products and find areas where it is not dependent on technology that is US based or US developed. It seems that not only is Ren Zhengfei concerned about the company’s ability to navigate the enormous roadblocks the US has set up, but in an internal network staff meeting he indicated that it is time for the company to change direction from its previous growth mode to one of ‘survival’, emphasizing profit and cash flow.
He explains that the global economy is headed for a decade of weak demand, particularly during the 2023 – 2024 period, and is concerned that the company can survive in such an environment. In order to stave off any possibility of such an occurrence, he wants to end all complex projects and abandon businesses that have little chance of becoming profitable, reduce R&D on projects, such as electric vehicles, that could take many years to develop, and refocus the company on IT infrastructure and customer service. While he admitted that his pessimistic view was colored by the US sanctions, the war in Ukraine, inflation, and a post-COVID world, the company’s 1H results saw little growth and a large drop in profitability, with the slowdown in demand across the company’s device businesses taking a toll while the IT business remained a growth driver.
It was also mentioned that Huawei could abandon markets in certain countries and face the fact that survival is now the focus, which means trimming the 2023 budget, reducing ‘scientific research’ and emphasizing a few key areas where component and product development can be linked together, and above all, employees should not ‘tell stories’ about the potential for projects and present a realistic prediction of prospects as ‘company losses will be deducted from your food (pay) package”. From an expense perspective he wants only two categories, paying stable wages to employees and paying back bank loans, while indicating that bonus assessment this year and next will be based more on operating profit as an encouragement to employees to drive profits and less on reducing the wage gap across the company
All in, this more focused and lean Huawei is long overdue, and while the company has taken measures to counteract the US trade sanctions, there was still a focus in the fact that Huawei is China’s largest privately-owned patent holder and that the company and China itself takes pride in the fact that the country’s R&D spending this year will be larger than that of the US for the first time. For a company so enmeshed in global politics, such focus is a distraction and while naysayers will cite the necessity for deep scientific research to create long-term product strategies, cutting the budgets on all but those with the highest probability for profits is what will keep Huawei from drifting toward its own demise.
When the initial sanctions were placed on the company in August 2018 there was a ‘doesn’t matter’ attitude from management, which became a ‘hunker down’ philosophy about a year later as the US tightened the trade noose, but there has been a lack of understanding by senior management as to the fact that despite its former size and stature, the company could implode or slowly drift into oblivion. Hopefully these words from the company’s founder will have an impact on both management and rank-and-file workers and will snap them out of the ‘too big to fail’ mantra that can easily become a psychological barrier to preventing just such an occurrence. If Mr. Zengfei is even half right about the prospects for the next few years Huawei needs to ‘get it’s mind right’ if it does not want to join the list of those companies that didn’t and no longer exist.
He explains that the global economy is headed for a decade of weak demand, particularly during the 2023 – 2024 period, and is concerned that the company can survive in such an environment. In order to stave off any possibility of such an occurrence, he wants to end all complex projects and abandon businesses that have little chance of becoming profitable, reduce R&D on projects, such as electric vehicles, that could take many years to develop, and refocus the company on IT infrastructure and customer service. While he admitted that his pessimistic view was colored by the US sanctions, the war in Ukraine, inflation, and a post-COVID world, the company’s 1H results saw little growth and a large drop in profitability, with the slowdown in demand across the company’s device businesses taking a toll while the IT business remained a growth driver.
It was also mentioned that Huawei could abandon markets in certain countries and face the fact that survival is now the focus, which means trimming the 2023 budget, reducing ‘scientific research’ and emphasizing a few key areas where component and product development can be linked together, and above all, employees should not ‘tell stories’ about the potential for projects and present a realistic prediction of prospects as ‘company losses will be deducted from your food (pay) package”. From an expense perspective he wants only two categories, paying stable wages to employees and paying back bank loans, while indicating that bonus assessment this year and next will be based more on operating profit as an encouragement to employees to drive profits and less on reducing the wage gap across the company
All in, this more focused and lean Huawei is long overdue, and while the company has taken measures to counteract the US trade sanctions, there was still a focus in the fact that Huawei is China’s largest privately-owned patent holder and that the company and China itself takes pride in the fact that the country’s R&D spending this year will be larger than that of the US for the first time. For a company so enmeshed in global politics, such focus is a distraction and while naysayers will cite the necessity for deep scientific research to create long-term product strategies, cutting the budgets on all but those with the highest probability for profits is what will keep Huawei from drifting toward its own demise.
When the initial sanctions were placed on the company in August 2018 there was a ‘doesn’t matter’ attitude from management, which became a ‘hunker down’ philosophy about a year later as the US tightened the trade noose, but there has been a lack of understanding by senior management as to the fact that despite its former size and stature, the company could implode or slowly drift into oblivion. Hopefully these words from the company’s founder will have an impact on both management and rank-and-file workers and will snap them out of the ‘too big to fail’ mantra that can easily become a psychological barrier to preventing just such an occurrence. If Mr. Zengfei is even half right about the prospects for the next few years Huawei needs to ‘get it’s mind right’ if it does not want to join the list of those companies that didn’t and no longer exist.
RSS Feed