CEO Series

Huawei CEO Breaks The Ice On US Trade Ban - Might Launch Own OS By Q4 2019

Huawei has been in the limelight this past week following the recent US trade ban, causing a widespread ripple effect.

The US Commerce Department has put Huawei on the “Entity List”, effectively banning it from working with American firms without US government approval.

The ban is only temporary at the moment as the Department has issued Huawei a 90-day license to work with US firms until August 19.

Regardless, there has been many fallouts so far: Google has restricted Huawei’s access to Android, chip makers such as Intel and Qualcomm have all reportedly stopped sales to Huawei, and prices for used Huawei phones have also plunged.

So what are Huawei’s thoughts on this new federal directive and what moves are they undertaking next?

Below is a transcript (edited for brevity) of responses from Huawei founder and CEO Ren Zhengfei to questions from various Chinese media at a roundtable that took place on May 21:

Q: Google has suspended some business with Huawei. To respond to this, Huawei has made a media statement. I’d like to know how Huawei will be impacted in terms of the Android operating system.

Ren: There would be some impact. Google is a great company, and we are both finding solutions and discussing possible remedies.

Q: Other Huawei executives have stated that Huawei is able to continue serving customers. Will the US ban affect your major customers and business?

Ren: We will certainly be able to continue serving our customers. Our mass production capacity is huge, and adding Huawei to the Entity List won’t have a huge impact on us. We are making progress in bidding worldwide.

Our growth will slow down, though not by as much as everyone imagines. In the first quarter of this year, our revenue grew 39% over the same period last year. This rate decreased to 25% in April, and may continue decreasing towards the end of this year. But the US ban will not lead to negative growth or harm the development of our industry.

Q: What’s your view on (the temporary) license? What could you do in these 90 days?

Ren: First of all, 90 days doesn’t mean much to us and we have prepared (for this). To us, the most important thing is to do our job well. What the US will do is out of our control.

I would like to take this opportunity to express my gratitude to the US companies that we work with. … We also have been receiving support from a large number of US component and part manufacturers over all these years.

In the face of the recent crisis, I can feel these companies’ sense of justice and sympathy towards us. Two days ago, at around 2 or 3am, Eric Xu (one of Huawei’s rotating chairs) called me, telling me how hard our US suppliers had been working to prepare goods for us. I was in tears.

As a Chinese saying goes: a just cause attracts much support, while an unjust one finds little. Today, some US companies are communicating with the US government about the approval.

Q: In a letter to your employees, you mentioned that Huawei has strengths and has made preparations. Can I ask where your strengths come from and what you have done to prepare?

Ren: We are always in need of US chips. Our US partners are fulfilling their responsibilities and asking for approval from Washington. If this approval is granted, we will still buy chips from these suppliers.

Even if there is an insufficient supply from our partners, we will face no problems. This is because we can manufacture all the high-end chips we need ourselves.

In the “peaceful period”, we adopted a “1+1” policy – half of our chips come from US companies and half from Huawei. Despite the much lower costs of our own chips, I would still buy higher-priced chips from the US. We cannot be isolated from the world. Instead, we should become part of it.

We don’t want to work alone. We can make chips that are as good as those made by US companies, but this does not mean that we will not buy chips from the US.

Q: How did you or Huawei decide to make your own chips? Ms. He (president of HiSilicon) said that Huawei began planning for the most extreme conditions many years ago.

Ren: In early 2000s, we were hesitant and wondered if it would be possible for Huawei to wear an “American cowboy hat”. So we decided to sell Huawei to a US company for about US$10 billion.

A contract was signed with this company, and all relevant procedures were completed. The deal was ready to be completed once it received the approval of the US company’s Board of Directors. While waiting for approval, the negotiation team, including me, all put on floral-print clothes, running and playing ping pong on the beach.

While we were waiting, the Board of Directors of the US company was reelected. Their new board chair was somewhat short-sighted and rejected the acquisition deal. If we had been sold to this company, we would have been able to get our American cowboy hat and try to take the world by storm.

After this deal failed, our senior executives were deciding whether to sell Huawei to someone else. All of our younger executives unanimously said no. I could not reject this, so I replied, “We will have to square off against the US when we reach the top. We need to get prepared.”

Since then, we have been considering the question of what happens when we meet the US at the top, and have begun to make preparations for this. That said, we will ultimately embrace each other because we want to work together with them to make contributions to society.

Q: How will the industry be impacted if the US does cut off the supply chain?

Ren: Our company will not end up with an extreme supply shortage. We have (gotten) well-prepared.

At the beginning of this year, I predicted that something like this would occur two years later, and that the US would not take action before the US lawsuit against us was settled in court. We were quite sure that they would take action against us whatever the result was.

We thought we would have two years to make preparations. But when Meng Wanzhou was arrested, it sparked everything off.

Q: Fang Zhouzi (an Internet celebrity) tweeted “If the spare tire is good, why not use it before a blowout?” What’s your opinion on it?

Ren: If we use spare tires in all our products, that means we are seeking the so-called “independent innovation”. The main purpose of independent innovation is to become a dominant player.

But we want to have partners all over the world. For that reason, his idea of using the spare tire before a blowout is not on our minds. He doesn’t understand our strategic thinking. We don’t want to hurt our partners. We want to help them have robust financial statements, even if it means we have to make adjustments.

As I mentioned, we don’t intend to stop using the components of US companies, but we haven’t told them about this. We hope US companies can continue to be our suppliers, so that we can serve humanity together.

To answer the question “If the spare tire is good, why not use it before a blowout?” Spare tires are backups. Why should we use them before our current tires burst?

Q: Speaking of Plan B, how much has Huawei invested in this plan over the years? If Plan B is not put into use, will Huawei continue to invest in the plan?

Ren: We have invested so much that I cannot give a concrete figure. For both Plan A and Plan B, the budget and headcount were allocated together.

Previously, Plan A received most of the budget, but now most of the budget will be allocated to Plan B. I don’t know exactly how much the budget is. Every report I receive is several pages long. And instead of asking questions about every single component, I just do a general review.

Making a plan is just one step. We have to identify the key phases for each component. So we are preparing little by little. Otherwise, we would not have hired 80,000 to 90,000 R&D engineers.

Q: When the challenge (of ensuring business continuity) truly comes, do you have any new ideas?

Ren: Business continuity is all about our Plan B, or our “spare tire” plan. Spare tires ensure that when cars break down, they can continue running after tires are replaced.

We have ensured our business continuity step-by-step. In fact, many parts we use in our products have been put into production. Despite this, we are open to parts from outside the company. Half of our parts are produced by other companies. I once said in an article that we should buy at least 50 million chipsets from Qualcomm every year. So we have never excluded or resisted foreign companies.

Spare tire is now a buzz word. In fact, it’s quite normal practice in our company. He Tingbo has become well-known because of her letter regarding Plan B. She published the letter just during the night when the US issued the ban on Huawei. She just couldn’t bear it anymore. She has been through a lot these years. She felt bad. Her team has been working so hard, but they just couldn’t keep their chins up.

Q: In the current situation, how would you define the future role of HiSilicon in Huawei?

Ren: The role of HiSilicon is a support team to Huawei, one that moves forward in tandem with the operating team of the company. It can be likened to a fuel truck, a crane, or a field medic that moves forward together with the core operation.

(It) will never become an independent unit. Our operating team is the department responsible for building network connections. It may not necessarily generate the highest revenue for our company in the future, but it is the strategic high ground.

The US has taken administrative measures against Huawei because it could not seize the strategic high ground. We will never give up this strategic high ground just for the sake of making more money. HiSilicon will never become part of our operating team and steal the thunder at Huawei.

Huawei OS In The Works Since 2012

With Google cutting off Huawei devices from its Android operating system, it begs the question: how is it going to stay competitive without the platform that powers nearly every smartphone in the world?

The Android operating system also brings the Google Play Store, which contains all of Google’s popular apps, like Gmail, YouTube and Google Maps, as well as other popular third-party apps.

However, Huawei has said that it has been preparing for this worst-case scenario and is already building an operating system of their own since 2012.

In fact, Huawei’s head of consumer division Richard Yu said that their own operating system will be ready for use in China “by fall”, or the fourth quarter of this year.

A version for its markets outside of China will be available in either the first or second quarter of 2020.

However, Yu stressed that Huawei’s own operating system would only be rolled out if they were permanently blocked from using Google or Microsoft products.

“Today, Huawei (is) still committed to Microsoft Windows and Google Android. But if we cannot use that, Huawei will prepare the plan B to use our own OS,” Yu told CNBC.

He added that Huawei’s own app store, known as the App Gallery, would be available on its own operating system.

The App Gallery is already installed on existing Huawei devices, but Google’s Play Store is often the default app store for consumers.

In addition, the homegrown OS will also be able to support a range of products and systems within its ecosystem, including smartphones, computers, tablets, TVs, automobiles and smart wear.

Yu also claimed that “if the Android app is recompiled, running performance is improved by more than 60%.”

According to Huawei, more details on the OS will be rolled out in the coming days.

Featured Image Credit: Bloomberg

 

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