Ren Zhengfei sends chill down Huawei & economy
Ren Zhengfei sends chill down Huawei & economy
Internal memo warns Huawei's survival on the line against global recession
Huawei founder Ren Zhengfei’s reportedly dire warning of Huawei’s make-it-or-break-it moment against a global recession spread like wildfire on Chinese social media on Tuesday, August 23 afternoon.
Ren is perhaps China’s most revered entrepreneur for not only holding the ICT (information and communications technology) giant together against U.S. persecutions but also for building the prosperous, high-tech, global, and employee-owned business from scratch.
Ren reportedly wrote to “send a chill to everyone” in an internal memo on Monday, where he repeatedly mentioned Huawei’s survival is on the line for the next two years, upon a “global recession” where no place on earth will emerge as a bright spot in three to five years, as part of a very “painful historical decade.” His solution for Huawei is to focus on profits and cash flows instead of revenue.
China’s economy fell 2.6% in the second quarter from the previous quarter. One in every five people aged 16-24 is without a job. The real estate industry, estimated to account for from 13% to 30% percent of the GDP, is in deep trouble. It is apparently against the background that Ren’s reportedly dire warnings struck a nerve here.
The internal memo was first reported by 第一财经 Yicai. Other Chinese media outlets have independently reported its gist.
The accounts of the memo across Chinese media outlets and social media are identical. This newsletter is an abridged translation of the most comprehensive version, first published by Yicai but now taken off its site, despite being available at other places. Yicai still provides a brief summary.
“Huawei declined to confirm or deny the internal memo,” the South China Morning Post reported, which in my opinion is basically a confirmation of its existence.
[Recommended reading via The Sunday Times of London on August 21: 5G wars: the US plot to make Britain ditch Huawei, an edited extract from The Secret History of the Five Eyes: The Untold Story of the International Spy Network, by Richard Kerbaj, a BAFTA-winning & twice Emmy nominated filmmaker & writer.]
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Reminder: The transcript, upon which the translation was based, remains unconfirmed. You are relying on my personal judgment that this is credible enough for you. I’ve cut the parts that I deem of relatively little value to you.
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整个公司的经营方针要从追求规模转向追求利润和现金流The Company's operating policy should shift from the pursuit of scale to the pursuit of profit and cash flow
Survive with Quality in the Next Three Years
We should see the difficulties faced by the company and the difficulties ahead. The next ten years should be a very painful historical period. The global economy will continue to decline. Now, due to the impact of the war and the continued blockade and suppression by the United States, the world's economy is unlikely to improve in the next three to five years. With the impact of COVID-19, there should not be a single region in the world that is a bright spot. Then the consumption capacity will be greatly reduced, exerting pressure on us (Huawei) not only on the supply side but also on the market side.
[Pekingnology: U.S. sanctions have created enormous difficulties for Huawei to secure key supplies.]
Under such circumstances, Huawei's over-optimistic expectations for the future should be lowered. In 2023 or even until 2025, Huawei must take survival as the most important guideline - and “survive with quality.” This slogan is very good and every business (unit inside Huawei) should conscientiously implement it.
If we have a little bit of hope in 2025 as planned, then we must first find a way to get through these three difficult years. The basis for survival must be adjusted to focus on cash flow and real profit, and not only on sales revenue. We will only have breathing space in 2023 and 2024. We are still not sure whether we can break through these two years. Therefore, every business unit should stop telling stories, they should focus on making them come true. Especially when forecasting businesses, you should stop fantasizing and telling stories to deceive the company, in which case the loss should be deducted from your (compensation) package. The first thing is to survive and we can only have a future if only we survive.
Shrink blind investments
In 2023, the budget should be kept at a reasonable pace. Businesses with blind expansion and blind investment should shrink or shut down.
The whole company must use the budget effectively. It cannot blindly close all the projects. The manpower saved (from closed businesses) should be deployed to the front line. We should continue to optimize the administrative organs (of Huawei), and reasonably prepare personnel. ICT infrastructure is still our “black soils” (the backbone of business). It must shrink to a competitive complex hardware platform and a competitive complex software platform. We should separate apart the projects that have taken ICT infrastructure for a ride…Terminals [Pekingnology: smartphones, tablets, etc.] are the foundation for our breakthrough in the future, but we cannot be blind. Now we must narrow our front, concentrate our forces, and increase our profits.
Huawei cloud computing should be steadfast in supporting Huawei's business development and take the road of supporting the industrial internet…(Personnel and resources at Huawei’s) Smart car solutions cannot be spread thinly on every component, and its research budget must be cut…(We must) focus on a few key components that are highly competitive...
[Pekingnology: Huawei has repeatedly said it will not manufacture cars. It provides in-depth, intelligent solutions for partners to make one, such as the Aito M5. This is one of the most watched businesses at Huawei.]
In addition to the continuous investment for survival and the main goal of being profitable, businesses that cannot generate value and profit in the next few years should be reduced or closed down, and human and material resources should be concentrated on the main channel. We should face the reality and not have too far-off and too great an ideal…Surplus personnel should be transferred to the “strategic reserve team,” and then they should be combined into reasonable positions (that can generate real value).
We must draw the marginal business out of the strategic core. After the marginal business is drawn out, we will first evaluate whether we can do it well and how many resources are needed to do it well. If we can't do a good job in a business that consumes huge resources, it is better to close it down…
Adhere to the principle of seeking truth from facts and we should shrink firmly in the market. We used to embrace the ideal of globalization and aspire to serve all mankind. What is our ideal now? Survive and earn some money wherever we can. From this perspective, we need to adjust the market structure and study where we can do it and where we should give up.
Abandon some markets
The first focus is on the lucrative markets and lucrative customers…We also have markets where we make big money (with relative ease). We should transfer personnel who used to tap difficult markets to make the big money (with relative ease).
Second, difficult countries and regions should be mainly a training base for new cadres to be promoted in the future. In some countries, we generate small revenue, and we will still stick to those countries, but do we still have to station workforce there?…Of course, some employees have been guarding the frontier (difficult markets) for a long time, and their income would decrease upon returning to China. They also have problems with their children's schooling. So if they voluntarily stay in those countries to continue their work, they shouldn’t be forcibly brought back.
Third, employees returning from overseas should be given priority in obtaining skills training and job opportunities. The staff returning from overseas should have a grace period with protection to ensure they receive proper training and a chance at a new post domestically…we must ensure that the returning employees have job arrangements and ample study time. If they cannot catch up, that would be another matter.
The financing department should make a good plan of cash flow…Although we plan to get better in 2025, what if we can’t then? Despite that good plan, we should have “food reserves.”
The company has two major expenses. One is to distribute dividends to employees, including stable wages. This is to strengthen internal confidence and cohesion. The other is to repay loans to banks. This is to enhance the trust in us from society. For projects that already have obvious potential risks, do not harbor any illusions. Instead, the risks should be identified so that our auditors can draw conclusions and quantify the risks…
Let everyone feel the chill
…The promotion and bonuses will be linked to the operating results. Let everyone feel the chill.
First, in this year's and next year's assessment, we should increase the weight of cash flow and profit. We would rather see the sales revenue decline, but the profit and cash flow should be increased, and the bonus for the increase of operating profit should be increased, so as to motivate everyone to compete for profit.
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Third, the bonuses must vary from business to business this year...In the past, the company's policy was basically common prosperity. The people did not feel the cold in winter. Everyone covered themselves with quilts, but some quilts were thicker and some thinner. At the end of this year, for businesses with large profits and cash flows, bonuses will be bigger. For businesses that cannot create value, bonuses will be very low, or zero. The businesses must be pushed to the brink, thus passing on the chill.
At present, we want to survive, not to fight for our ideals…if we cannot earn money, we should dare to give zero bonus, because the basic income of the employees is enough to cover the necessities of life…[Pekingnology: Huawei’s pay is generally considered quite fat in China.]
Investment at all costs at the key point relevant to survival
Quality is the first productive force. We must adhere to this line. Research and development should be responsible for the quality and performance of products. We also promise that service experts should have comprehensive capabilities. Products of poor quality are a disgrace to research and development personnel. This statement should be posted on the wall of the research and development office…
Take reasonable, scientific, and reasonable control of inventory. We should change from panic self-help in the past to quality self-help, and pay attention to reasonably decreasing inventory. We should avoid insufficient profit and tight cash flow due to excessive inventory, which would constitute our new crisis. At strategically critical opportunities and points relevant to survival crisis points, we can invest at any cost, but we cannot spend money indiscriminately at non-strategic opportunity points. (End)
Reminder: The transcript, upon which the translation was based, remains unconfirmed. You are relying on my personal judgment that this is credible enough for you. I’ve cut the parts that I deem of relatively little value to you.
Read Pekingnology’s archive on Huawei’s Ren Zhengfei
How Ren Zhengfei grew up, in the Huawei founder's own writing
Ren Zhengfei's trip to the U.S. almost three decades ago
Mr. Ren Zhengfei went to Moscow
Huawei founder's observation of Japan's "lost decade"
Huawei founder's farewell remarks to Honor
And again, via The Sunday Times of London on August 21:
5G wars: the US plot to make Britain ditch Huawei, an edited extract from The Secret History of the Five Eyes: The Untold Story of the International Spy Network, by Richard Kerbaj, a BAFTA-winning & twice Emmy nominated filmmaker & writer.