Deputy Chairman, Huawei
Huawei Rotating CEO Ken Hu first-ever TV Interview with CNBC
Huawei's Deputy Chairman and Rotating CEO Ken Hu discusses a number of key ingredients that have contributed to the company's rapid growth, including Huawei's approach to innovation, its business strategy, employee ownership, management philosophy, Huawei’s future.
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About Ken Hu
Ken Hu, Deputy Chairman and Rotating Chairman of Huawei, has focused on the company's strategy for 5G deployment, cybersecurity transparency, and the importance of global supply chain unity. At the 2022 Huawei Global Analyst Summit, Hu stated that Huawei does not support "decoupling or fragmentation" of chip supply chains, calling such approaches "bad for ICT industry development." He also discussed Huawei's efforts to reduce energy consumption in ICT through simplified architecture and renewable energy, and noted that the company had filed a 3D packaging patent for chips in 2019 as a way to develop leading systems without access to the most advanced processes. Hu has repeatedly emphasized the need for collaborative cybersecurity standards. At the opening of Huawei's Cyber Security Transparency Center in Brussels in 2020, he called for unified standards and verification based on facts rather than "speculations or baseless rumors," and proposed a "GDPR light" scheme for cybersecurity in Europe. In earlier appearances, Hu argued that 5G represents a single global standard and that stronger network capacity creates greater opportunity, while also stating that Huawei would not disclose customer data if asked by any government, as the company builds infrastructure and does not control customer data.
Transcript (81 segments)
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Narrator0:29
South of China on the outskirts of Shenzhen, a bustling modern city some call China's Silicon Valley, lies a sprawling campus and headquarters of Huawei. This is the heart of Huawei, the Chinese tech powerhouse here in Shenzhen that's shaking up the world of telecommunications. This week on Managing Asia, we get an exclusive look inside China's Huawei Technologies with CEO Ken Hu in his first ever television interview.
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Ken Hu1:04
I've seen Huawei transform from a very small Chinese company into one of the global technological pioneers within three decades.
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Narrator1:14
Ken Hu, ambitious, detailed, influential. He's one of three CEOs taking turns to run the tech juggernaut. He shows me his idea of a safe city, of cloud, big data, and public safety. Big vision for a company that has come a long way from a startup in 1987.
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Ken Hu1:36
I've worked with founder Ren Zhengfei for 26 years. From my interactions with him, I know that he wants Huawei to be a great company and make meaningful contributions to society.
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Narrator1:50
Huawei's spectacular rise has caught the world's attention. The maker of telco equipment has overtaken established players like Ericsson and Nokia to become the world's number one.
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Ken Hu2:05
We focus on our core mission which is our pipe strategy including digital infrastructure and smart devices. We focus our energies on these. We don't do everything.
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Narrator2:19
Huawei has also snapped up a significant share of the smartphone market. The brand just 6 years old rang in over $20 billion in global sales last year just behind Apple and Samsung.
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Ken Hu2:34
In the past 30 years, we've adopted the mentality of a marathon runner. We invest around 10 to 15% of our revenue in R&D and that was $9.4 billion last year. It reflects our commitment to growth and research.
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Narrator2:55
Huawei's massive empire has a workforce of 170,000, 80,000 of whom are in research and development. We've been given rare access to this R&D center. This is one of the many facilities Huawei has been investing in around the world. Here they test everything from sound and radio frequencies for phones to telecom network hardware. This hefty investment in research has sparked Huawei's rapid growth, lifting revenues to $60 billion for the entire group in 2015. The other factor some say is its competitive pricing.
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Interviewer3:34
You're giving traditional networking equipment makers like Ericsson and Nokia a run for their money. To what extent is the company sacrificing margins just to win market share?
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Ken Hu3:52
I don't think we're sacrificing margins for market share. From what I can see, the entire telco and carrier market is currently at an important juncture of transformation within the telecoms business. We see that over the years it's profited from a population boom which has led to an increase in data flow. Increasingly the focus is shifting to content and value creation for customers. We've seen the telco business model transform from being investment driven to value driven. Within this process, Huawei can assist our customers to achieve this business transformation. We already have more than 400 telcos as our customers and within the world's top 50 telecom operators, 45 of them are our customers. So what we need to do first and foremost, help them increase their revenue. Second, help increase their efficiency and third, help lower their costs of production through innovation.
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Interviewer5:00
What are your profit margins like in the telecom equipment business?
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Ken Hu5:03
Our profit margins are similar to that of the industry, perhaps a little higher.
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Interviewer5:10
So, are you saying the amount of money you're pouring into R&D, into innovation, is actually showing up in better pricing power?
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Ken Hu5:20
Our investment in innovation is mainly driven by our long-term strategy and as mentioned, profit margins in this industry are not very high. Therefore, it's not that easy to maintain the commitment to R&D in the long term.
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Interviewer5:38
You've been very successful with telcos in Europe. How are you gearing up for 5G?
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Ken Hu5:48
When 4G rolled out in 2009, we had already started to develop 5G technology and so we are one of the earliest companies to invest in 5G. We've announced that for the next 5 years until 2018, we'll invest $600 million US in R&D alone. This amount is not part of our commercial investment. We'll further discuss this after 2018. Right now, we have more than 1,000 engineers and scientists working on 5G. We've already set up 11 R&D centers around the world. We've also widely sought cooperation with different industries such as the automobile sector to explore how 5G can be applied to their business. By 2020, when 5G will be extensively deployed, I believe Huawei will be able to perform building upon our 4G leadership and make us our customers' top choice for 5G.
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Narrator6:51
Huawei is now expanding these days into the lucrative cloud segment by providing gear and software to build data centers.
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Interviewer6:58
As a newcomer, what are you doing to crack the cloud services segment which is already dominated by competitors like HP, Cisco and Dell EMC?
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Ken Hu7:11
In this age of the cloud, one of the biggest changes is that within the next 10 years, most telco companies will move to cloud or have capabilities in cloud. This is the single biggest transformation in the market and also Huawei's biggest opportunity. Cloud transformation is just the beginning. How it will pan out in the competitive landscape is yet to be seen. When enterprises and industries plan to use cloud, they'll need a firm who truly understands their business and wants to build a lasting business partnership in order to complete the whole business transformation. We think Huawei will be able to showcase our technological innovation, customer centric model as well as our breadth of technology in this area.
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Interviewer8:00
Cloud and data services segment right now makes up about 8% of Huawei's total revenue. Do you have a target in mind? How much you want to grow this segment?
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Ken Hu8:10
In the next 5 years, our revenue from cloud will exceed 10 billion US.
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Interviewer8:15
Will most of that growth come from the Chinese domestic market or are you exploring opportunities overseas?
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Ken Hu8:22
We have our sights on the global market. China will make up a substantial portion, but we're focused on global growth. Huawei has customers in more than 100 countries.
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Interviewer8:29
You sell equipment to 45 of the world's top telcos, but success in the US has been hard to come by. Your network equipment there has been banned because of security concerns. Are you frustrated?
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Ken Hu8:46
It's hardly any setback. As a company that's launching into the global market, it's not uncommon to face obstacles anywhere. Currently, our business strategy in the US is very clear, that is we will focus on smartphones while we'll continue to patiently await the right opportunities in the area of networking equipment. But we've done really well in the smartphones and mobile terminal segment. I heard from the team there that the launching of the Honor series in the US has been very well received.
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Interviewer9:17
When it comes to the telecom equipment business, are you doing anything behind the scenes to overturn that decision? What are you doing to change the image of Huawei within Washington?
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Ken Hu9:28
No, the network equipment business in the US market is not our focus. We're not doing anything extra at this point.
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Interviewer9:35
Are you looking to clinch 5G projects in the US?
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Ken Hu9:37
It's still early days to talk about this as the industry is only discussing the standardization of 5G. We've not touched on commercial deployment yet.
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Interviewer9:46
But you're hopeful.
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Ken Hu9:48
Let's wait and see.
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Interviewer9:51
Huawei has long been known as a supplier of networking equipment, but in the last five or six years, you've been really aggressive going into the smartphone business. You've since become the third largest smartphone player behind Samsung and Apple. Are you worried about the slowdown you're seeing in China? Do you feel it will have some impact on your handset sales?
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Ken Hu10:12
To be honest, we still see room for growth for smartphones in China. So, we don't think the changes in the overall market will have much negative impact. We're still seeing upside in the Chinese market.
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Interviewer10:26
Huawei's ultimate goal is to overtake Samsung and Apple in terms of smartphone sales in 5 years. Do you really think Huawei can pull it off? What are you doing to crack the US smartphone market where you still have very little presence?
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Ken Hu10:42
I'm confident that Huawei will become a strong player in smart devices. I'm confident of that. The first Apple iPhone was launched in 2007 and it's been about 10 years now. We anticipate that by 2020 there will be another big transformation for smart devices. There are a few drivers behind this transformation. First, we'll start deploying 5G within the next 5 years, and artificial intelligence will make smart devices even more powerful. Next, improvement in product features such as audio and video will improve quality and possibly interaction. So, by 2020, we'll welcome a new era for smart devices and their intelligence. By then the entire industry will see disruptive changes and more investments will be directed to this. We have started preparing early in terms of strategy. We have a dual focus. First to further strengthen our position in smartphone related technology. Second we'll expand our brand retail platforms and distribution channels overseas. We believe that with these investments in this new era of smart devices, Huawei will be in a strong position in the industry.
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Interviewer12:07
Overtaking Samsung and Apple is not going to be easy. Can you tell me in terms of smartphone products and ideas, what can we expect to see coming out of Huawei in the next 5 years that could wow the markets?
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Ken Hu12:23
We do not expect future technology to look, sound, and feel as it does now. Both the smart technology as well as cloud and AI have begun to merge. So what we'll see in the future may be entirely different from what we have today.
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Interviewer12:42
Are you saying Samsung and Apple should be afraid of you?
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Ken Hu12:44
Of course.
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Interviewer12:47
Samsung's recent decision to permanently discontinue the Galaxy Note 7 has clearly benefited Apple because people were starting to switch over to the iPhone. Have you seen handset sales pick up on your end as a result?
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Ken Hu13:03
This incident has shown us the high risks and the stiff competition in the consumer electronics industry. Therefore, as a commercial company in such an industry, encountering such problems is quite common. A main takeaway for us from this issue is to seriously reflect and ensure that we prevent such problems from happening to Huawei and examine how we can improve the process of quality control for our products from their innovation to the end products. This to us is a very important reminder.
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Interviewer13:38
Do you hope to benefit from Samsung's current problems?
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Ken Hu13:41
If the problems of our competitors result in an increase in our sales, it's a good thing to us. But we're more concerned about providing more reliable products.
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Narrator13:53
Stay with us for more of the exclusive interview with Ken Hu, co-CEO of Huawei Technologies in just a moment. Will the consumer related business eventually overtake the telco networking side of the business? Consider that's possible. Managing Asia. We'll be right back.
This is lunch hour at Huawei, where thousands congregate. This is just one of 10 canteens on its 500 acre campus in Shenzhen, where 40,000 employees work to keep China's tech giant running. Huawei says these are the people who own the company, not the state. After so many years in business, Huawei has essentially not traded on any stock exchange. Why stay private?
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Ken Hu14:45
Staying as a private company is a choice we made as part of our business strategy and financial structure. From the financial point of view, because of our employee stock ownership plan, we share the benefits with our employees and they fork out money from their pockets to buy the company's stocks to promote its development. From the business point of view, remaining private will allow senior management to plan mid to long-term strategies. For instance, we had started the 5G program and discussions seven years ago. That was a very early and deliberate move to shape our long-term strategy. Without the pressure from a short-term capital market, we're able to sufficiently consider the strategies and put all our focus on creating value for our customers without having to manage stockholders' short-term profit demands. Yet, interestingly, all our stockholders are our employees. And so, in the end, our stockholders actually receive very good returns.
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Interviewer15:50
So, no plans to ever take the company public?
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Ken Hu15:52
No plans for now, but we can't say forever. Perhaps 100 years later.
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Interviewer15:58
Last year, according to figures, Huawei pulled in total revenues of $60 billion. How do you hope to do this year? How profitable do you hope to be?
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Ken Hu16:08
This year, we hope to achieve $80 billion in revenue. And as for profit margins, we hope they'll be at a similar level to last year.
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Interviewer16:16
The bulk of the revenue, about 60% comes from the telco networking side. The rest comes from the consumer related side like handphones and handsets and smartphones. As you get more aggressive in data center related sales, as you get more aggressive in smartphones, will it change this revenue breakdown?
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Ken Hu16:34
The revenue structure will likely be different in the future. We estimate that by 2020, our overall revenue will reach $150 billion. And of this, $80 billion will be from infrastructure and enterprises. The other $70 billion will come from the consumer business. As compared to 2015 revenues, we'll see at least double our infrastructure business in the next 5 years. But for smart devices, we'll be expecting a bigger increase of about three and a half times more compared to the end of 2015.
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Interviewer17:11
Will the consumer related business eventually overtake the telco networking side of the business?
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Ken Hu17:15
That's possible.
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Interviewer17:17
According to figures last year, about 60% of your total revenue is now generated outside of China. Are you concerned about the volatility and uncertainty you're seeing in the global markets? What's your outlook?
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Ken Hu17:35
The outlook on the global economy is indeed facing very strong uncertainties. It's still in a state of recovery after the 2008 global financial crisis. At the same time, geopolitics is also in a state of turmoil. What we see in the global market is that it is filled with many risks and risk management is certainly a major part of our business strategy. On the other hand, there are enormous opportunities in the market as well. As we know, after the 2008 crisis, all the countries in the world, whether developed or less developed, emphasize technological innovation to boost economic recovery. Without a doubt, ICT will play a very important role in driving the recovery and the reboot of the global economy.
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Interviewer18:28
Are you watching the US elections closely?
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Ken Hu18:33
I often read the reports from the media.
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Interviewer18:35
Do you think that's a concern for global markets?
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Ken Hu18:36
Our share of business in the US is too small. It's hard to tell the impact of the elections.
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Narrator18:41
Stay with us up next. As I started from the bottom up, I would pay more attention to the details and because of this, my co-workers may find me a little strict. Do you ever worry the company gets too big, too complicated? Of course. Managing Asia will be right back.
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Interviewer19:07
Huawei today is run by three co-CEOs every six months. You're one of them. What's the idea behind this management structure and does it work?
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Ken Hu19:23
We started this rotation CEO mechanism 5 years ago to form a team of the most senior level of the company management together with the board. I think why we first started this was because of the evolving complexities of the business environment this industry faced with very rapid improvements in technology and progress. We hope to have a more proactive leadership to help the company better respond to such a changing complex business environment as well as to better manage our business risks. I personally feel that this is a very good way to learn how to work better and closer with my co-workers.
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Interviewer20:06
How different are the three of you? Do three of you actually get along well together?
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Ken Hu20:16
This system is about collaboration. While everyone has their differences and personal opinions as well as strengths, I think this is a good way to help us appreciate the strengths of others and to focus on the collective goal to drive the business forward and scale greater heights. Looking at the company now, I think the rotation mechanism can be considered a success.
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Interviewer20:38
But ultimately, the founder is still in charge.
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Ken Hu20:42
Correct. Chairman Ren has increasingly delegated his duties to our team and he has more time to focus on the long-term business strategies as well as the bigger problems and this is also very important to the company.
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Interviewer21:00
What sort of working relationship do you have with Mr. Ren Zhengfei, your boss?
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Ken Hu21:09
Our professional relationship is a very natural one. He's my boss and I've been working for him since I graduated from school 26 years ago. I feel that our working relationship is built on a strong foundation. I can ask him questions as well as receive his help and guidance whenever I need it. Increasingly, I feel that over the past 26 years, Chairman Ren has been a great source of spiritual guidance and a source of strength for the company.
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Interviewer21:44
You joined a company way back in 1990 when it was just a startup. You're basically from the telco side of the business. You worked your way up the ranks. How would you describe your leadership and your management style?
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Ken Hu21:57
Personally, I have grown tremendously. If we were to talk about leadership management style, I feel that I focus more on the big picture. Yet at the same time, I'm also observant of the details that will affect our customers as well as business operations. As I started from the bottom up, I would pay more attention to the details and because of this, my co-workers may find me a little strict. Secondly, my management vision is very simple. I don't wish to complicate things. When I'm with my co-workers, I encourage them to always bring any problems to the table, to discuss in an open, transparent way, and to make things clear. As the company and business grow bigger, management also becomes more complicated. Sometimes I'll feel a little frustrated with such growing pains, but this is a part of growing up for the company.
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Interviewer22:55
Do you ever worry the company gets too big, too complicated?
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Ken Hu23:00
Of course, we don't wish for Huawei to be burdened or blindsided like very large organizations sometimes do. We're working hard to prevent that from happening.
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Interviewer23:08
You have about 80,000 employees working for you in research and development. How exactly do you go about attracting the best and the brightest to work for you here at Huawei?
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Ken Hu23:20
In terms of attracting the smartest and brightest, I think the best way is through giving them opportunities by ensuring that the company enjoys steady and positive growth. That's the best way to attract the best minds. We believe that the best of the best are usually seeking out opportunities. Second, our benefit sharing system in the company also serves as an effective platform. We hope that Huawei will become the place where employees can fulfill their dreams and on top of that receive rewards for their work with Huawei.
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Interviewer23:56
And finally, in terms of business model, when you look at where Huawei is today, it's in networking, it's in data center related sales, it's in smartphones, wearables. Are you trying to be everything to everyone in the telco space?
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Ken Hu24:15
From the business strategy point of view, we're not trying to do everything on our own. Our primary focus is on the digital pipeline. Secondly, the businesses that Huawei has is not limited to just telecommunications, but also the broader telco industry as well as other industry verticals and the consumer segment. To summarize, Huawei's positioning for the future will be a frontrunner and an enabler in the evolution of smart and mobile technology across markets and societies. At the same time, we remain focused on the digital pipeline.
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Interviewer24:52
Still, it's a lot of work. Is that why you need three co-CEOs?
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Ken Hu24:56
Indeed, we have many opportunities and challenges. So, we need to work as a team.
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Narrator25:01
And that was Ken Hu, co-CEO of Huawei Technologies, speaking to us exclusively here in Shenzhen. Hope you've enjoyed the program. Join us again next week for more leadership insights on Managing Asia. I'm Christine Tan. Thanks for watching.