Live: Huawei releases fully audited annual report for 2019华为举行2019年度报告发布会

He's undoubtedly capturing everyone's attention with customers and partners. Huawei turned in a robust business and generally achieved the expected business results. It also laid a foundation for what I'm going to say today. At the very least, he deserved commendation for launching an extremely difficult annual report. The coronavirus outbreak is undoubtedly capturing everyone's attention. We certainly hope it will pass quickly so that everything goes back to normal. Given the outbreak being controlled in China and developing outside of China, Huawei has attached great importance to the immediate and full implementation of prevention and control, ensuring the health and safety of our employees. We also work to respond and satisfy the needs of our customers and governments in the fight against the pandemic. As of today, all production in China has generally been restored. At the same time, we worked together with operators to ensure secure and stable network operations and help fight the pandemic with digital innovation and applications.

In 2019, Huawei focused on ICT infrastructure and smart devices and achieved a sales revenue of 858.8 billion RMB, a year-on-year increase of 19.1% and a five-year CAGR of 21%. Net profits were 62.7 billion RMB, a year-on-year increase of 5.6% and a five-year CAGR of 14%. Operating cash flow was 91.4 billion RMB, a year-on-year increase of 22.4% and a five-year CAGR of 15%. Looking back at 2019, Huawei achieved robust operations, maintained a stable net profit margin, and healthy cash flow. Breaking it down to the three businesses: consumer business grew rapidly with a sales revenue of 467.3 billion RMB, a year-on-year increase of 34%. Enterprise business achieved this year's revenue of 89.7 billion RMB, a year-on-year increase of 8.6%. The carrier business, impacted by carrier investment fluctuations, realized a revenue of 296.7 billion RMB, a year-on-year increase of 3.8%. Breaking it down to regions: China realized a revenue of 506.7 billion RMB, increased by 36.2%. Due to the external environment, outside China the revenue decreased by 1.6% year-on-year. Among them, EMEA achieved a revenue of 206 billion RMB, a slight year-on-year increase of 0.7%. APAC was 70.5 billion RMB, revenue affected by carrier investment fluctuations and GSM outside of China, dropping by 13.9%. Americas reached 52.5 billion, up by 9.6%. In 2019, the company's net cash reached 258.9 billion RMB, an increase of 32%. Asset liability ratio remained at a relatively stable level. Huawei has always pursued and maintained a stable capital structure. Despite the changes in business and external environment, the overall capital structure remains stable.

Technological innovation and basic research are fundamental to Huawei. Every year we invest more than 10% of revenue in research and development. R&D spend in 2019 was 131.7 billion RMB, or 18.9 billion US dollars, accounting for approximately 15.3% of annual revenue. Over the past ten years, R&D investment exceeded 600 billion RMB, equivalent to 86 billion US dollars. We have more than 96,000 R&D staff globally, making up about 49% of our total headcount. Respecting and protecting IPR is the only way to innovation. Huawei has been respecting the intellectual property rights of others while protecting its own. In 2019, Huawei obtained a total of 16,243 granted patents worldwide, of which 5,147 were granted in China, 8,756 were granted in Europe and America, accounting for 54%. According to the latest data from the European Patent Office, Huawei ranked number one in patent applications in Europe in 2019. Huawei has been granted a total of more than 85,000 patents around the globe. This is a snapshot of our financial numbers in 2019. You can see those numbers in our financial reports. Next, I want to share with you my outlook about the future and also our strategy for different businesses.

Since the Industrial Revolution in 1760, human society has never been more prosperous, and at the same time has never seen greater social challenges. These challenges include global warming, frequent natural disasters, and also the ongoing coronavirus outbreak, social divides, and increasing inequality. The network has become a basic part of human life. Its impact on the world will only become stronger. Therefore, cybersecurity challenges will only be greater, not smaller. Unilateralism and economic confrontation are growing. Such actions based on anxiety and panic are not helping because they are hindering the fixes. Geopolitical unrest everywhere, politicizing almost everything is an emerging dangerous trend which will only add to the turmoil. We're also seeing inadequate drivers behind sustainable economic development. The core of the issues: without a strong economic route that can sustain, the problems will be hard to crack. Despite the global turmoil, humankind carries on its perpetual pursuit of prosperity and development. How to overcome the challenges, to get rid of turmoil, and to achieve a high level of prosperity are top priorities before us. We believe that developing must come first. We must not abandon development just because there are challenges. Without development, there will never be an answer. Second, global cooperation must be strengthened. Many of the problems facing the world today are the results of globalization that cannot all be solved by returning to the agrarian age, nor can they be solved with anti-globalization measures. The ongoing coronavirus outbreak reminds us that the problems can only be resolved through cooperation. Global prosperity and challenges are both rooted in technological innovation. Finding the answer depends on innovation. Resolving the technological challenges primarily depends on technological innovation as well. Innovation is not the ultimate answer, but it's the key for us to get there. We need to develop trust, reduce dangers, and rebuild mutual trust. There's a pressing need to come up with technological innovation that copes with the growing cybersecurity challenges.

It is a global consensus to address social and industry wiring issues, especially the underlying problems in development. One must have solid infrastructure, in particular the ICT infrastructure. However, there is a lack of global efforts. Indeed, many of the problems are attributed to the patchy infrastructure across the world. There is a pressing need to review and redefine the policies of infrastructure with the goal of effective enhancements. The ICT infrastructure has become the most fundamental among all kinds of infrastructure. Building a fully connected, digitally intelligent infrastructure is the essence of any solution to promote development and address challenges. This is our understanding. This is also our suggestion for global development. It is also what we are working towards. We firmly believe that humanity will enter the intelligent world in 20 to 30 years. According to research by Huawei and some universities, industry digitalization and intelligence are now in a phase of rapid development, bringing a lot of opportunities. In 2019, the global digital economy reached 15.6 trillion US dollars, accounting for 19.7% of the world GDP. The number is expected to grow to 24% by 2025. The digital economy is outpacing the global economy. In 2019, the digital economy grew at a rate 3.5 times faster than the global economy. Analysis shows that over the past 30 years, every US dollar of digital investment brought about 20 extra dollars in GDP, whereas every dollar in non-digital investment could only generate 3 dollars in GDP. Huawei focuses on the ICT infrastructure and smart devices that enable digitalization and intelligence. Our investments are centered on connectivity, the cloud, computing, and intelligent devices.

5G, featuring ultra-high bandwidth, ultra-low latency, and massive connections, will bring automated experiences to consumers, accelerate digitalization and intelligence, and provide new momentum for social and economic development. We will actively promote global 5G development, work with industry-leading enterprises to build industry applications that can be replicated on a large scale, and contribute to a thriving 5G ecosystem, helping telecom operators and their partners, many consumers, achieve greater business and societal value. As enterprises accelerate digital transformation, they need intelligent IP networks that provide higher bandwidth, reliable SLAs, and intelligent O&M. In 2019, we released a series of solutions such as AI-based 5G integrated bearer network intelligence, zero-loss DCN, and all-wireless campus network. We will continue to invest in innovation, carry out joint innovation with customers, and lead the development of intelligent IP networks and standards. Fiber networks are driven by experience instead of bandwidth. Last year, we released the intent-driven optical network strategy. Huawei's fiber networks provide not only ultimate experience for households but also more reliable and higher bandwidth connectivity for vertical industries. As a leader in the global optical communications industry, we will remain committed to key research and actively contribute to the standards. In terms of cloud and computing businesses, to meet the requirements of the intelligent world for heterogeneous and diverse computing, we released the Kunpeng + Ascend computing strategy, illustrating things we do and things we'll leave to the partners. This strategy aims to build an open and thriving ecosystem to better serve our customers. We have integrated organizations related to storage, computing, and cloud services and established the Cloud & AI BG in 2020.

We tested AI training cluster Atlas 900, while we launched Atlas cluster service and MindSpore AI computing framework to complete our full-stack, all-scenario AI portfolio. We have also released the Huawei Developer Program 2.0. We plan to nurture 5 million developers with universities and the community in five years and invest 1.5 billion US dollars to promote the development of the computing industry. We are committed to providing reliable, secure, trustworthy, and sustainable public cloud services and hybrid cloud solutions. Cloud services, AI, and 5G together can well enable data analytics and applications. We provide such an enabling platform for the intelligent world while working with partners to facilitate industry digitalization and intelligence. Huawei Cloud services were developing at a very fast speed and grew more than three times in 2019. Last year, Huawei smartphone shipments reached a record high of over 240 million units, and global brand awareness increased to 93%, winning the trust and love of global consumers with excellent products and experience. Looking into the future, Huawei is committed to fulfilling its vision and mission on intelligent devices. Huawei is dedicated to building a smart life with ultimate experience for consumers in all scenarios. Huawei adheres to the 1+8+N scenario strategy. Through HMS, including AppGallery, HiLink, and other industry software, hardware, applications, and service partners, Huawei is able to meet consumers' requirements for all-scenario smart life. In addition, last year we launched a 1 billion US dollar Shining Star program for device developers. As 5G, AI, and VR become more mature and mass-marketed around the world, Huawei's smart device business will continue to gain traction for its development.

The fast-developing ICT industry is not without its challenges. Moore's Law and Shannon's Law are approaching capacity. Therefore, Huawei upgraded its innovation strategy from the 1.0 era of technology and engineering innovation based on customer needs to the 2.0 era of vision-driven theoretical breakthroughs and basic technology inventions. The core concept of Innovation 1.0 is to meet customer requirements and challenges, innovate technologies and engineering, innovate products and solutions, and solve the problem of 1 to N. The key is to help customers and partners enhance competitiveness, help customers increase revenue or reduce costs, and help them achieve business success. Now we are talking about the Innovation 2.0 strategy. The core concept is that we believe the future world is an intelligent one, it's a fully connected one, and we'll explore theoretical breakthroughs and basic technology inventions to solve the world's intractable problems with 0 to 1 innovation. As a leading global ICT infrastructure and intelligent device provider, Huawei is committed to sustainable development. We work with customers, partners, and third-party organizations around the world to advance the United Nations SDGs. ICT technologies will play an increasingly important role in delivering sustainable development. Last year, we incorporated inclusion into our sustainable development strategy. The other three components are security and trustworthiness, environmental protection, and a harmonious ecosystem. Again, last year we officially released the Tech4All program, which aims to cooperate with multiple organizations around the world in education, environmental protection, health, and well-being. Technology could pass it on, leaving no one behind. In terms of security and trustworthiness, we provided network assurance for more than 200 major events and natural disasters worldwide. Amidst the ongoing coronavirus outbreak, we will honor our commitment to shoulder our responsibilities and work with customers and partners to overcome the difficulties. Huawei's vision and mission is to bring digital to every person, home, and organization for a fully connected, intelligent world. Thank you.

Since the very beginning of the outbreak, we've taken a whole series of measures to ensure the health and safety of Huawei employees. And on that basis, we also work to satisfy the needs and requirements coming from our customers and the governments around the world as they fight the pandemic. To date, all the production activities in China have been fully restored. Therefore, there would be no problem in the short term for us to continue supplying our customers and partners around the world. At the same time, as everyone knows, the coronavirus is still spreading, especially outside of China. If that cannot be well controlled, it will cause challenges. On a daily basis, we have been briefed by our supply chain division around how our global suppliers have been doing in light of the current situation. We've also been doing what we can in our power to support our partners and suppliers as they fight the epidemic, as they help to ensure supply to Huawei as well. At this point of time, we certainly cannot say for sure how the pandemic will evolve. If it cannot be well controlled, if some individual suppliers of Huawei cannot continue supplying to us, it will cause long-term challenges and it also causes uncertainty regarding whether Huawei will continue to supply to the market. Of course, this is something that we definitely don't want to see, and we are also working hard on our side as well. Okay, thank you.

Whether the pandemic would mark a distinct distinction between the two eras of before and after the pandemic, I'm not sure. But for many families and for many individuals, what has been happening will definitely be an unforgettable memory that would always stay there. As for Huawei, there's no time or effort on our part to think about what kind of changes or what kind of improvements to be made in our business operations, because currently our priority is how to fast respond and satisfy the needs of our customers around the world, including governments, in their fight against the pandemic, provided that the health and safety of our employees can be guaranteed. As we know, in light of the current situation, online conferencing, online shopping, online living, and also online entertainment has been on the surge. That has caused a dramatic increase of network traffic. That also makes it ever demanding to ensure safety and stability of networks around the world. Huawei serves more than 170 countries around the world. We have been working closely with our customers and also local governments to ensure stable and secure operations of the network. We're also working to address the ever-growing demand from increasing online activities. Of course, during the course of the pandemic, we have also identified some issues and challenges in our operations management that we need to work on. So when this whole pandemic is over, we definitely will take measures to address those issues to drive continuous improvements. For example, is part of our findings that you don't have to see face-to-face to have a good meeting, and you don't have to really all sit in one room to have a good press conference such as this one we are having today. What's going on will certainly bring about new perspectives in terms of how people look at networks and how people look at 5G. Thank you.

All revenue from 5G last year was more than three billion dollars. So percentage-wise, it's very small, no matter when we look at the total revenue of Huawei or the total revenue of our carrier business. 5G deployment was just kicked off. We haven't seen a large-scale 5G rollout yet. We had to take a lot of time explaining with our customers, partners, and also government regulators about 5G. There are also several cases where Huawei equipment was already used for their 2G, 3G, and 4G networks, and yet the customers did not choose Huawei for 5G or did not continue working with Huawei in selective geographies for different types of reasons. Those examples include Optus and VHA in Australia, TDC in Denmark, and Telia in Norway. And I believe some of you may have already seen those reports. I did not prepare the numbers in terms of 5G revenue in China and outside China. Thank you.

The journalist from CNBC was asking the same question during our interview this morning. I can only repeat my answer that I gave to CNBC. I saw that report from Reuters. I also saw the report of China Daily on March 29th. The China Daily report says if the measures were taken by the United States, the Chinese government would be left with no other choice but imposing similar measures on some companies. I think the Chinese government will not stand by watching Huawei be slaughtered on a chopping board. I believe the Chinese government will also take some countermeasures. If the US government can arbitrarily change the Foreign Direct Product Rule, that would be a destruction to the global technology ecosystem. If the Chinese government also follows with countermeasures, we can imagine what kind of impact that would be on the industry. This type of destructive ripple effect on the global industry would be astonishing. If the Pandora's box was to be opened, we are probably going to see catastrophic destruction to the global industry. And it's not going to be only one company, Huawei, that could be destroyed. It is our hope that the global industry can work together, where everyone can focus on the challenges that the industry and also the customers are faced with, and work together to come up with trustworthy products. In that context, I hope this is our story. But if this is not true, we might be seeing an endless flow of disastrous aftermath. If that happens, not a single player in the global value chain can stay immune. Thank you.

5G deployment in Europe will certainly be delayed to the extent and to the time when the pandemic will be brought under control. In China, after the pandemic was brought under control, indeed it has accelerated 5G deployment. Currently, all the three big telecom operators are in the process of tendering. And I believe for all the three big telecom operators in China, they will complete the planned amount of the 5G deployment, or even slightly higher than their year-beginning plan.

I think it's pretty easy to understand why the growth rate of our net profit last year decreased. After Huawei was added to the entity list on May 16th of last year by the U.S. Commerce Department, we certainly had to invest more into R&D to, so-called, fix the holes in our system. Because out of a sudden, a large number of suppliers of Huawei could not continue supplying to us, so we had to reboot to a certain degree our supply chain. In that context, it was certainly impossible for Huawei to continue pursuing as high growth rate in our net profits as 2017 or 2018. We had to fix the holes, we had to reboot our supply chain, and survival turned out to be the first priority. As for the lower percentage of our overseas revenue in our total revenue mix, one of the big reasons for that was no more access of newly launched smartphones from Huawei to the Google GMS after May 16th. The consumer business outside of China was growing very fast before May 16th and was declining very fast after May 16th. It only started to bounce back since Q4 of last year. The impact on Huawei's consumer business revenue in markets outside of China was at least 10 billion dollars. Naturally, the percentage of our overseas revenue as of our total revenue will be smaller. Thank you.

Our choice is very simple. In China, we are committed to implement our 1+8+N seamless AI life strategy. And at the same time, we would also work to build the HMS ecosystem so that we are able to sell our smartphones in markets outside China. We certainly hope to see continued access of Huawei smartphones to the GMS, but also we need to do that just in case HMS and the AppGallery are not ready. That decision is not for Huawei to make. What we can choose to work on ourselves is to develop the HMS as well as the application gallery that goes with it. It certainly is going to be very difficult, but we are left with no other choices. We certainly do not position ourselves as a domestic player for these smart devices business. We certainly look at a global market for this business. Thank you.

At the very least from public reports, I have never seen or heard that any member state of the European Union has labeled Huawei clearly as a high-risk vendor. European countries, as far as I know, base their decisions on facts. They clearly know what cybersecurity actually means. We have been engaging and communicating with various European governments. There are so many things that have not happened, so I think it's not good to make comments on things that have not happened. Thank you.

I have never heard that Huawei is banned from participating in 5G in Japan. We have been communicating with our customers as well as our regulators. We have had collaboration with NTT DoCoMo and KDDI in Japan in the mobile area. Once again, we only work together with SoftBank Mobile. Our current collaboration is still focused on 4G. SoftBank Mobile today has not deployed a large number of 5G base stations. We hope that Huawei's cooperation with SoftBank Mobile can be extended from 4G to 5G. And of course, this is a decision that needs to be made by our customers. Thank you.

I would not share in-depth analysis here. Instead, I would refer you to a BCG report commissioned by the United States Semiconductor Industry Association. It's called 'Halt: Restricting Trade with China to the End of U.S. Semiconductor Leadership.' There is a very good explanation in that report around the question you raised. A simple search would help you locate that report. I think the analysis there definitely would be more in-depth compared to the answer that I could give here. Thank you.

I think the impact on our business would be negligible. Let me elaborate a little bit on Open RAN. First, Open RAN is not a standard. It's not another 5G standard. In essence, it's only an architecture and a method of implementation. The base stations that are to be designed and developed based on the Open RAN architecture and the technologies still have to follow agreed 5G standards, still have to satisfy the needs of telecom operators around power consumption, performance, and value for money. Open RAN advocates openness and open source as only an implementation method to implement the 5G base stations or possible base stations of 6G. Looking back into the history of this mobile communications industry, there was one revolution we saw during the times of 3G in terms of how base stations were implemented. That's when Huawei released its distributed base station. Before distributed base stations were launched to the market, the baseband unit and the radio unit were integrated into one equipment and was sheltered in an air-conditioned room. With the invention of the distributed base station from Huawei, the RU was separated and separately mounted on the tower. That substantially increased the performance and also coverage of base stations, and that solution also has become a way of implementation of 4G and 5G base stations. Actually, it has become a de facto standard in the industry. In the times of 2G, 3G, 4G, or 5G, when 3GPP was working on standards setting, the focus has always been interoperability to ensure smartphones can interwork with base stations, base stations can interwork with the core network, and base stations can work together with each other across different vendors. That is the foundation to ensure global roaming. And there has never been a time that the 3GPP would look specifically at the implementation methods and architectures of different vendors. From the perspective of telecom operators, it's not their area of interest in terms of how base stations are implemented. As a matter of fact, the way of implementation between different equipment vendors is different. To telecom operators, they care about the performance, the quality, the value for money of different base station products coming from different vendors. So, to answer your question, we know in our industry we have had SingleRAN, and now we are seeing Open RAN. No matter it's SingleRAN or Open RAN, they must have followed agreed and established 5G standards so that all smartphones can interwork with the base stations, base stations can interwork with each other, and base stations can interwork with the core network. SingleRAN was a joint design, but Open RAN is a separate design. SingleRAN is like special-purpose computing, and Open RAN is like general-purpose computing. There has always been this race between general-purpose and special-purpose computing. Companies such as Intel, they've always wanted to replace today's special-purpose computing with a generic general-purpose computing. But to today, we have seen more and more scenarios and use cases where special-purpose computing seems to be a better fit, especially after the increasing adoption of AI. There was once a meeting with the former CEO of Intel, Brian, and he wanted the Huawei base station to use Intel's x86 processors. And I told him this is like a race between the general-purpose computing and Huawei's self-developed special-purpose computing. If one day the general-purpose computing can catch up in terms of performance and cost structure, Huawei would use Intel's general-purpose computing because it takes more time and investment for Huawei to do it itself. Open RAN, in essence, is a general-purpose computing. I think that there would be a long time to go before the power consumption, cost structure, and performance of general computing to be able to satisfy the needs of customers. Therefore, in the short term, I do not see major impact on Huawei's business. Maybe many people have not noticed what is the most critical technology in the area of mobile communications. That's in the area of radio access. No matter it's Open RAN or SingleRAN, you have to come up with products like RU or AAU that can be able to meet the needs of customers around performance, around power consumption, and around the cost structure. Thank you.

Actually, I answered that same question yesterday, and I would answer that question again here. I'm very pleased that New IP has drawn attention from the industry as well as friends from the press. I gave the name of New IP myself. At the very beginning, it was a different name. We were discussing the next generation of IP, where Huawei was doing research on 5G New Radio. And to me, the future mission of the next generation IP was similar to the mission of 5G New Radio. So I simply wondered, why not call it New IP, just like the way we call 5G New Radio? We can do a little bit of search on the internet, then we can realize that IP technology was invented first in 1969, and the protocol was finalized in 1978. It's almost 50 years. Of course, IP has achieved enormous achievements over the past 50-plus years. At the very beginning, IP was designed to connect all the computers of the world for office or productivity purpose, and then it was extended to also connect all the phones that consumers have to deliver mobile internet services. However, for so many years, IP technology was not sufficient to satisfy the needs of industrial internet, particularly around low latency and security. There was a similar story for 5G as well. While 5G was to satisfy the increasing need for enhanced mobile broadband experiences by consumers, it also promises to deliver low latency and massive connectivity that is required for IoT or industrial internet. It's the same story for New IP. While it is supposed to satisfy the needs around mobile internet and productivity, it is also supposed to satisfy the needs for industrial internet, things like low latency and security. This is what the New IP is. Today, New IP is still a research topic. IP experts from Huawei discuss and work together with scientists and engineers from around the world. Currently, IP experts from various countries, including Italy, the UK, Canada, Germany, Belgium, Spain, etc., are participating freely in the research and innovation around the next generation of IP, with the hope that the challenges can be well addressed and resolved, so that IP can be better prepared for the future, so that the New IP can not only build on what the traditional IP has achieved but also be able to satisfy the needs for industrial internet. I was taking an interview with the Financial Times yesterday in the afternoon, and they raised the same question. And I said Financial Times should not politicize the New IP discussions from the very beginning, because this is a pure technical topic. Technical experts do not have untold secrets or agenda. They come together only for free discussions about how the future of technology holds. It's not that complicated. There is no political agenda. This is a pure technical discussion that should not get politicized. Thank you.