Reinvention
When things get tough companies have two choices. They can knuckle under and hope that a cycle will flip and things will eventually right themselves, not always the ideal choice, or they can reinvent themselves. Many of those that took the first path are no longer with us or have managed just to stay above water, while a number of the ‘reinventers’ are among the most well-known brands. An example of the former would be Timex (pvt) a well-known watch company that reinvented itself in 1982 by releasing the Sinclair Personal Computer, the first PC to sell for less than $100. Unfortunately the Sinclair was so small that it could almost nothing, and within two years the company went back to exclusively selling watches.
On the opposite side, there is Netflix (NFLX), who went from DVD rental to streaming and became the largest streaming service on the planet, or Amazon (AMZN), going from book-seller to selling everything as the world’s largest on-line retailer. So the idea of company ‘reinvention’ is not a new one, but is also a risky business, and in some cases it is not a voluntary choice. Take Huawei (pvt) formerly the world’s largest provider of communication equipment and at times, the largest smartphone brand. US trade restrictions have caused Huawei to see its smartphone business, especially outside of China, almost disappear, and anti-China sentiment based on claims that Huawei’s telecommunications equipment allows calls to be monitored through intentional ‘backdoors’, has made it difficult for the company to sell such equipment to those closely allied to the US.
Ren Zhengfei, the company’s founder and largest shareholder recently issued a statement at its “No Retreat is the Road to Victory – Legion Formation Meeting” as a battle cry to workers and management. "I think peace is achieved. We must use hard work and heroic sacrifices to create a peaceful environment for the next 30 years, so that no one will dare to bully us again. We are doing it for ourselves and also for the country. To die for the country, the sun and the moon shine; the phoenix nirvana, man and sky admire you. History will remember you, wait for the day when we drink the celebration wine together, listen to the thunder in the silent place."
Whether this speech served as a rallying point for company workers or not remains to be seen, but the company has joined the ranks of the ‘reinventers’ this year by creating a number of new business units, such as the Customs & Port Corps, the Smart Highway Corps, the Data Center Energy Corps, and the Smart Photovoltaics Corps, and earlier this year set up the Coal Mine Corps, all of which are intended to diversify the company’s revenue base and create new income opportunities. While the coal mining business in China has been a pointof focus recently, given China’s power reduction mandates, Huawei is not actually mining coal, but providing an IoT system based on its own Hongmeng operating system to the mining industry to make mines ‘intelligent’ through ‘digital transformation’.
As Huawei is still a large company, with $71.2b in sales for the 9 months (down from $104.94b last year) they have a better than average chance that over time some of the new businesses can begin to generate sales to offset the smartphone and com business shrinkage, but Huawei does have one advantage in that it is private and does not have the same accountability to shareholders that public companies in the US would have. That said, while all of said new businesses are based on the company’s move into IoT, developing substantial customer bases in these new markets will take time. The US has allowed some business between Huawei and US suppliers, but such usually stirs up negative sentiment from China hawks in Congress. Huawei’s IoT business is not based on leading edge semiconductor processes, which gives them the ability to produce much of the needed silicon on the Mainland, avoiding US restrictions, but we expect there will have to be many more ‘rally’ meetings and speeches before the company is able to see a return to its previous glory. Reinvention takes time.
On the opposite side, there is Netflix (NFLX), who went from DVD rental to streaming and became the largest streaming service on the planet, or Amazon (AMZN), going from book-seller to selling everything as the world’s largest on-line retailer. So the idea of company ‘reinvention’ is not a new one, but is also a risky business, and in some cases it is not a voluntary choice. Take Huawei (pvt) formerly the world’s largest provider of communication equipment and at times, the largest smartphone brand. US trade restrictions have caused Huawei to see its smartphone business, especially outside of China, almost disappear, and anti-China sentiment based on claims that Huawei’s telecommunications equipment allows calls to be monitored through intentional ‘backdoors’, has made it difficult for the company to sell such equipment to those closely allied to the US.
Ren Zhengfei, the company’s founder and largest shareholder recently issued a statement at its “No Retreat is the Road to Victory – Legion Formation Meeting” as a battle cry to workers and management. "I think peace is achieved. We must use hard work and heroic sacrifices to create a peaceful environment for the next 30 years, so that no one will dare to bully us again. We are doing it for ourselves and also for the country. To die for the country, the sun and the moon shine; the phoenix nirvana, man and sky admire you. History will remember you, wait for the day when we drink the celebration wine together, listen to the thunder in the silent place."
Whether this speech served as a rallying point for company workers or not remains to be seen, but the company has joined the ranks of the ‘reinventers’ this year by creating a number of new business units, such as the Customs & Port Corps, the Smart Highway Corps, the Data Center Energy Corps, and the Smart Photovoltaics Corps, and earlier this year set up the Coal Mine Corps, all of which are intended to diversify the company’s revenue base and create new income opportunities. While the coal mining business in China has been a pointof focus recently, given China’s power reduction mandates, Huawei is not actually mining coal, but providing an IoT system based on its own Hongmeng operating system to the mining industry to make mines ‘intelligent’ through ‘digital transformation’.
As Huawei is still a large company, with $71.2b in sales for the 9 months (down from $104.94b last year) they have a better than average chance that over time some of the new businesses can begin to generate sales to offset the smartphone and com business shrinkage, but Huawei does have one advantage in that it is private and does not have the same accountability to shareholders that public companies in the US would have. That said, while all of said new businesses are based on the company’s move into IoT, developing substantial customer bases in these new markets will take time. The US has allowed some business between Huawei and US suppliers, but such usually stirs up negative sentiment from China hawks in Congress. Huawei’s IoT business is not based on leading edge semiconductor processes, which gives them the ability to produce much of the needed silicon on the Mainland, avoiding US restrictions, but we expect there will have to be many more ‘rally’ meetings and speeches before the company is able to see a return to its previous glory. Reinvention takes time.
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