By Greg Gao
Ren Zhengfei, the founder of China’s tech giant Huawei Technologies, told its employees in an internal email article on August 22 that "the next ten years will be a a very painful historical period, the global economy will be in a continous recession, Huawei must center on cash flow and profits. " Huawei must shift its focus from pursuing scale to ensuring profits and cash flow for survival. Ren's article was widely reported in Chinese language press and shared on to Chinese social media, leaving chilling effects.
Ren added that Huawei must tighten its investment, marginal businesses will be shrunk and closed; At the point of a survival crisis, Huawei should take all possible measures to ensure survival, and the chill will be felt by everyone.
The global economy would continue to decline over the next decade, while the war in Ukraine, the continued blockade from the United States, and the COVID-19 pandemic would leave “no bright spot in the world” in the next three to five years. Then the consumption power will be greatly reduced, putting pressure not only on Huawei’s supply chain but also on the market demand for its products, said Ren.
Ren's internal warning was regarded as indication that Huawei is in crisis management mode amid falling revenue and profit. Huawei saw its revenue shrink further in the first half of 2022 with a 5.9 percent year-on-year decline to RMB301.6 billion ($44.7 billion), with its net profit margin at 5 percent, down from 9.8 percent in the same period last year, according to South China Morning Post.
“The critical period of our survival is 2023 and 2024. Whether we can achieve a breakthrough during this period is still uncertain. Therefore, no fancy stories are acceptable stories. We must face reality and exclude all illusions, especially when it comes to business forecasting.” Ren said.
Huawei’s 2023 budget should maintain a reasonable pace, blind expansion and investment should be reduced or be closed.
Ren also drew attention to the importance of the company’s traditional focus on information and communications technology (ICT) infrastructure.
Huawei cloud computing should focus on supporting its business development in a down-to-earth manner and take the road of supporting the industrial Internet. Meanwhile, its smart car solutions cannot be rolled out on a complete front. It is necessary to reduce the scientific research budget, strengthen the commercial products, and insist on the modularization model in research and development, Ren said.
Huawei would “give up operation completely” in some countries, while next year it would maintain an appropriate business rhythm.
The United States put Huawei on an export blacklist in 2019 that barred it from accessing critical technology of U.S. origin, hurting its ability to design chips and source components from outside vendors. The United States says Huawei is a security risk, which the company has denied, according to public information.
Ren also emphasized that Huawei needs to improve the status of the service system, control the inventory reasonably, scientifically, and rationally.