Huawei founder's panicked warning goes viral ahead of November party congress - China Boss update 8.26.22
Update
What happened.
“The founder of Huawei has delivered a stark warning for the tech company’s future, sparking alarm with the frankness of his assessment and what it signals for smaller businesses amid China’s economic troubles and a global downturn,” The Guardian’s Helen Davidson reported.
Davidson, The Guardian:
In a leaked internal memo, Ren Zhengfei told Huawei staff “the chill will be felt by everyone” and the company must focus on profit over cashflow and expansion if it is to survive the next three years, indicating further job cuts and divestments.
“The next decade will be a very painful historical period, as the global economy continues to decline,” Ren said, pointing to the pandemic as well as the impact of the Ukraine war and a “continued blockade” by the US on some Chinese business.
“Huawei must reduce any overly optimistic expectations for the future and until 2023 or even 2025, we must make survival the most important guideline, and not only survive but survive with quality.”
Pekingnology’s Zichen Wang, who provided a translation of the memo (scroll down) in his newsletter, described the content as a “dire warning of Huawei’s make-it-or-break-it moment” that “spread like wildfire on Chinese social media.”
Why it matters.
Leaked memo went viral on social media
Davidson also highlighted social media’s reaction to the memo, saying the leaked document was “shared and discussed by more than 100 million users, with some expressing fear of what it meant for regular people and small businesses if a company the size of Huawei was sending such warnings.”
The Guardian:
“The last person who said such things was Vanke’s Wang Shi and then real estate was in danger,” said one commenter, referring to the chief executive of a state-run property development company.
Several blamed the US, with one commenter saying Huawei’s expansion “came to an abrupt end under the frenzied suppression of the United States”.
Trivium China analyst Linghao Bao told The Guardian that Ren’s message probably “stood out” because it sounded as if the leader of one of China’s most successful Big Tech companies - a national champion firmly backed by Xi Jinping’s government - “was in panic mode” when he wrote it. Emphasis added.
“In addition, it’s a politically sensitive time right now. We’re just a couple of months away from the 20th party congress. As you know, economic performance is tied up with the party’s legitimacy,” Bao said.
Ren intended to “send a chill to everyone”
“The internal memo was intended to ‘send a chill to everyone’ as the company’s survival is at stake amid the impact of US trade sanctions,” South China Morning Post’s Iris Deng said. “No more stories, we have to talk about the realities,” and “[w]e have to survive first,” Ren wrote.
Deng, SCMP:
The internal warning indicates 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 per cent year on year decline to 301.6 billion yuan (US$44.7 billion), with its net profit margin at 5 per cent, down from 9.8 per cent in the same period last year.
Revenue from the device business group, which includes smartphone sales, fell 25.4 per cent to 101.3 billion yuan from 135.7 billion yuan in the same period last year, as it continued to lose market share, both in China and overseas. Since 2019, Huawei has found itself at the centre of an escalating US-China trade war and has been banned from buying advanced US-origin technology, such as the chips that power its smartphones.
The telecommunications giant has struggled to diversify its revenue streams as it seeks to remake itself as an enterprise services giant. Some of its efforts include signing up partners for its own operating system HarmonyOS as an Android replacement, and forays into new business areas such as software for the auto industry and providing cloud computing and other digital solutions for government and corporates.
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Have a nice weekend.