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Huawei defies the odds to lead global telecoms market after 180 days on US trade blacklist

Written by South China Morning Post Published on   8 mins read

Strategies that include a sharper focus on its home market have helped Huawei stabilise the ship through the trade ban.

When the US government added Huawei Technologies to its trade blacklist on May 16, the Trump administration expected to hobble the Chinese telecommunications gear maker’s business by restricting its access to American hi-tech components.

Fast-forward to the present and Huawei has not only recalibrated its operations under the stringent conditions of Washington’s Entity List, but the company has continued to push its global agenda for 5G – the next-generation mobile technology that will help power advances such as the industrial internet, autonomous driving and smart cities.

Shenzhen-based Huawei will mark 180 days under the US trade blacklist on Sunday, a dubious milestone that has been tempered by efforts to stabilise its operations.

The privately-held company last month reported total revenue of 610.8 billion yuan (USD 86.8 billion) for the nine months ended September 30 and more than 60 commercial 5G network supply contracts to lead the industry, which puts it in a position to surpass USD 100 billion in sales this year.

This performance has defied early predictions that Huawei would stumble under the US trade ban, which restricts the company’s access to American-origin technologies such as software and semiconductors.

However, Huawei’s septuagenarian founder and chief executive Ren Zhengfei, may need to double down on initiatives to bolster confidence in the world’s biggest network gear maker, as political and economic headwinds still threaten to push its overseas business off a cliff.

“Our strong results in the third quarter show that we continue to have the trust and support of our clients and customers,” Huawei said in an emailed statement. “Despite the challenges, we have continued to achieve quality growth.”

Separate interviews with five current Huawei employees, who have direct knowledge of recent initiatives and who spoke on condition of anonymity, described how the company, with Ren taking a more hands-on approach, has made a united stand against the US government’s campaign to undermine its business around the world.

The initial strategy involved a sharper focus on media relations which involved maintaining a consistent message: Huawei does not spy for Beijing and will not share user data with the Chinese government.

Within days of the US Commerce Department announcing that Huawei had been added to its blacklist, a crack team was formed by the company’s carrier business group, including staff from legal, product marketing, global sales, supply chain, and technical support.

Their mission was to immediately respond to all relevant inquiries – at any time, seven days a week – from Huawei’s partners and customers in more than 170 countries worldwide.

Meanwhile, Ren, the son of schoolteachers and a survivor of China’s great famine between 1958 and 1961, has put himself front and center in Huawei’s increased media relations effort, as the company seeks to project a more transparent and open image.

Before his daughter Meng Wanzhou, Huawei’s chief financial officer, was arrested in Vancouver in December last year at the request of the US government, Ren had never given a television interview. Nor did he often speak to journalists because he was content to let his lieutenants do all the talking.

Now he is everywhere. Since January, Ren has spoken with journalists from both foreign and domestic media organizations. These engagements escalated after Huawei’s blacklisting in May, which led Ren to talk more with various international media in a bid to regain control of the narrative and assuage the concerns of its more than 194,000 employees worldwide.

“Honestly, I was in shock when I learned about the US ban,” said a Huawei employee surnamed Yang, who works as an engineer at one of the company’s research and development teams.

“I was not familiar with the Entity List in the past. I thought that it could hit Huawei’s business hard. However, I don’t have any choice but to continue to work hard.”

Huawei has expanded its international public relations team to provide a stronger infrastructure for staging campaigns such as “Coffee with Ren” as well as presentations at various industry events, especially in Europe.

More than 10 new recruits have been added over the past several months.

Ren has spoken openly of his concerns, including describing the company as a “damaged plane”, and the corporate communications team has not stopped his soul-searching.

Ren, for example, said in September that Huawei was ready to share its 5G technology with potential Western buyers, as the company remains mired in the middle of the US-China trade war.

Huawei also arranged at least two major visit tours for many of its major clients and business partners at home and abroad in the first three months since the US trade ban.

The tours were designed to highlight that operations are normal and that the company’s supply chain network remains strong, according to people familiar with the matter.

Social media, however, may also have played a part in helping Huawei to get its message across to a wider audience.

Soon after news of Huawei’s blacklisting spread, a memo written by Teresa He Tingbo, the president of semiconductor subsidiary HiSilicon, about this unit’s contingency plans, became one of the top-trending topics on Chinese microblogging service Weibo.

One such scenario was the US cutting off access to advanced chips and technology.

Though hopeful that a situation in which the US cuts off access to advanced chips and other technologies would never happen, HiSilicon devoted significant resources to building a backup that would ensure the survival of the group, according to He’s memo.

That backup plan has now been initiated to “ensure the strategic safety of most of the company’s products and the continuous supply of most products”, He said.

HiSilicon has been designing systems-on-a-chip devices, based on technology from British firm ARM, since at least 2012. Fast-forward to September this year and Huawei has started making 5G base stations without US components.

It said total production of 5G base stations should more than double next year, as the company had aimed to start scaling production since October. Last month, HiSilicon also started selling its 4G Balong 711 chip on the open market.

While research firms like Haitong and Canalys have reported that Huawei has been stockpiling critical US components for almost a year, restricted access to American-made software such as Google’s Android operating system has proved to be a trickier issue for Huawei.

Huawei was forced to delay the release of its new flagship Mate 30 series smartphones in Europe, its biggest market outside China, because the handsets have no access to Google apps and services under the US trade ban.

While Google apps are not an issue in China’s restricted internet market, they are of critical importance to Huawei’s overseas smartphone business.

Although Huawei unveiled its own operating system, Harmony, in August, the company said it had no plans to install that software on its smartphones yet because Android remains its top choice and it wants to protect the current app ecosystem.

Richard Yu Chengdong, chief executive of Huawei’s consumer business group, said Harmony was capable of supporting a range of products and its own ecosystem, and is compatible with all Android apps and existing web applications.

“It will take years to build a viable app ecosystem for Harmony and convince consumers outside China to use it instead of Google services,” said Jean Baptiste Su, a principal analyst with Atherton Research in San Jose, California.

Microsoft also stopped accepting new orders from Huawei in response to the trade blacklisting, according to a South China Morning Post report in May, citing people familiar with the matter.

The negative publicity over the US trade ban, combined with a global slowdown in the smartphone market, may have forced Huawei to reduce orders for new handsets from Foxconn Technology Group, the world’s largest electronics contract manufacturer, according to people familiar with the matter, who asked not to be named because the information was private.

They said Foxconn, which also assembles smartphones for Apple and Xiaomi Corp, stopped several production lines for Huawei handsets in May, after the US blacklisting.

Smartphone contract manufacturers have flexibility built into their production schedules and can increase, or reduce, orders to meet changing conditions, and it is not clear whether the decreased production is temporary or part of a longer-term cut, the people said.

In response, Huawei said that its “global production levels are normal, with no notable adjustments in either direction”.

Despite these travails, Huawei has shown plenty of resilience since the US blacklisting in May, according to Atherton analyst Su.

“We believe that Huawei’s growth will continue in the last quarter of the year – and beyond – for its enterprise and telecoms carrier businesses,” Su said.

“The company has been able to replace most of the US components used in its enterprise and carrier products with either non-US or home-grown parts.”

Huawei’s latest financial results showed that the company was in better shape than Ren initially predicted in June, when he said that Huawei was unlikely to see much growth, with total sales capped at around USD 100 billion this year and in 2020 because of the trade ban.

A sharper focus on its home market has also helped lift the company’s financial results.

The company targeted a significant increase in its share of China’s smartphone and telecoms network equipment markets to help offset potential losses overseas because of the US blacklist, according to people familiar with the matter.

Given the economic environment this year, Huawei’s ability to ship 200 million smartphones ahead of its previous target represents a significant milestone for the company, according to Thomas Husson, a vice-president at Forrester Research.

On October 23, Huawei said it shipped 200 million smartphones since the start of this year. That was 64 days earlier than when the company shipped the same number of handsets last year.

“Its P30 and Mate 30 range of devices demonstrate Huawei’s ability to master technology innovation,” Husson said. Still, he indicated that Huawei’s smartphones shipments are likely to suffer in Europe because of the lack of Google services under the US trade ban.

Washington has also provided a sliver of good news. US companies will be allowed to start selling to Huawei “very soon”, according to US Commerce Secretary Wilbur Ross in an interview with Bloomberg that aired last Sunday.

Ross said the US government had already received 206 requests from US suppliers – more than what was initially expected.

To be sure though, Huawei’s Ren has said that a clearer picture of how the company has held up under the trade ban will not likely emerge until next year.

“If you come to talk with me at this time next year, you will see if we are still growing,” Ren said this week. “We have to focus on our business for the next three to five years … to lead the market.”

That is why it is important that other countries foster alternative hi-tech supplies, as the US limits access to American technologies to certain companies, according to Ren this week.

He called on hi-tech suppliers in Europe and Japan for support, without elaborating on the identity of these firms.

In the meantime, Huawei has also had to deal with employee complaints about working conditions at the Shenzhen-based technology giant.

Hu Ling, a member of the human resources team at Huawei’s elite 2012 Lab research unit, recently posted a letter of complaint on an internal message board [later deleted] that accused the company of encouraging overtime work that was above the maximum allowed by law.

The letter, which was leaked externally and went viral online, also described how the previous head of human resources had asked for permission to lay off employees who had complained about corporate welfare issues, such as the quality of canteen and shuttle bus services.

Ren has called for vigorous internal debate on these issues but has asked employees to keep these concerns within the Huawei community.

In the end, while Huawei has so far managed to survive the difficulties of being caught between the US and China’s trade dispute, it is hard to avoid the conclusion that its ultimate fate is inextricably tied to the sort of trade deal that the world’s two biggest economies reach in ongoing negotiations.

This article first appeared on the South China Morning Post.


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