Huawei founder and CEO Ren Zhengfei speaks during a press briefing in Taiyuan, Shanxi Province, on Feb. 9, 2021. (Jessica Yang/AFP via Getty Images)
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The founder of Chinese technology giant Huawei, has reportedly told the company to brace for “survival” amid the grim global economic outlook, according to a leaked internal memo.
Once riding high on the wave of globalization, the successful telecom held one of the largest global shares on shipments of communications devices. However, the company has reportedly changed its tune after it was heavily sanctioned by the United States and other Western nations.
It is now telling its employees to give up on any wishful notion that the company will somehow return to its past state of glory but instead “focus on cash flow and profit” to stay afloat.
“The next ten years will come down as a painful period in history, as the world economy goes into recession … Huawei needs to tone down on any over-optimistic forecast and make survival its most important creed in the next three years,” Ren Zhengfei, CEO and founder of Huawei, wrote in the leaked memo, according to the South China Morning Post (SCMP).
Ren’s comments were first reported by Yicai, a Chinese financial news publication. Huawei has declined to confirm or deny the memo, but many experts and local media outlets deemed the text authentic. However, the report has since been removed from Yicai and other local news sites.
According to The Epoch Times reporter who reviewed the memo before it was taken down, words like “survive or survival” appeared seven times in the text.
In May 2019, the United States placed Huawei on its entity sanctions list, preventing U.S. companies from supplying products to Huawei without permission from the U.S. Department of Commerce. As a result, Google ceased working with Huawei, and Huawei devices were denied access to Android updates.
In May 2020, the U.S. Department of Commerce offered new regulations requiring that any chip produced using U.S. technology and equipment first be approved by the United States before it can be sold to Huawei.
Most chip fabs worldwide, including leading Chinese foundry SMIC and Taiwan’s TSMC, purchase equipment from U.S. companies like Applied Materials, Lam Research, and KLA.
TSMC revealed to the public on July 16, 2020, that it had stopped accepting orders from Huawei on May 15 due to the impact of the U.S. ban on Huawei.
In addition, the Five Eyes nations—the United States, the United Kingdom, Australia, New Zealand, and Canada—have all banned Huawei equipment from their 5G networks, dealing another major blow to the Chinese telecom giant.
Ren’s ‘Survival’ Strategy
Ren, Huawei’s CEO, proposed keeping the company’s budget reasonable, “blind expansion and blind investment should be contracted or closed, and the saved manpower should be put to the front line.”
According to the plan, Ren seeks to reduce the company’s focus to only competitive hardware and software, narrow the product line, and increase the margins and profitability. He added that “any sector that doesn’t do well will be cut … and that losses will be deducted from the employees’ meal benefits package.”
Ren said that Huawei used to embrace the idea of globalization and placed a heavy bet on the world economy, but the idea now is to “stay afloat by earning what you can no matter how little.”
He also proposed that bonuses and promotions should be linked to the company’s operating results, which he claimed would motivate employees to compete for profits.
Massive Drop in Profitability
According to Huawei’s operating results released in mid-August, the company’s sales revenue in the first half of this year was about $44 billion, and net profit was 5.0 percent of that, or $2.2 billion.
Meanwhile, the company’s sales revenue for the same period last year was $46.7 billion, and the net profit was 9.8 percent, or $4.6 billion.
The numbers show that Huawei’s sales revenue in the first half of this year dropped 5.9 percent or $2.7 billion year over year, while net profit plunged 52 percent or $2.4 billion.
Founded in 1987, Huawei currently has 195,000 employees and operates in more than 170 countries and regions worldwide. However, it is under sweeping U.S. sanctions for supplying telecommunications equipment to Iran.
The company’s smartphone sales have also plummeted due to chip supply cuts. Data from British market research firm Omdia showed that Huawei’s smartphone shipments in 2021 fell to 35 million units, a staggering 81.6 percent drop from 2020.