Huawei 2022 Annual Report Press Conference

Ladies and gentlemen, friends from the press, good evening, good afternoon, good morning. Welcome to join this year's Huawei annual report press conference here with us or online. Next, I will introduce Huawei's business strategy. 2023 will be crucial to Huawei's sustainable survival and development. A challenging external environment and non-market factors continue to take a toll on our operations. In the midst of this storm, we have kept racing ahead. We will continue to drive progress, inspire passion across the organization, and further hone our capabilities. We also proactively improve our business environment and more effectively manage the risks. This is the only way we can lay a solid foundation for our future.

Looking into 2023 and beyond, our strategic initiatives will focus on unlocking new growth opportunities, enhancing business resilience, honing a unique advantage, succeeding through quality, and ensuring a high level of business continuity and product competitiveness. I will address each of these initiatives in my presentation.

First, we will work to enable the digitalization, intelligence, and green development of industries to unlock growth opportunities. Countries around the world have turned to developing their digital economy as a key counterweight against economic downturn. Digital economies are now in full swing, and an intelligent economy is right on the horizon. The global push for green development is driving another round of revolutionary energy and electrification. These developments will open up abundant growth opportunities for Huawei. We estimate that by 2027, our addressable markets will exceed 1 trillion US dollars.

The global economy is progressing along several tracks: mechanization, electrification, automation, information, digitalization, intelligence, and green development. Naturally, countries at different stages of development will choose different paths as they build up their digital economy. Just as different industries and organizations will use the path that works best for their digital journey. In some cases, opting for the most advanced technology is not necessarily the best solution, and Huawei will put customers' needs front and center, providing them with the right technology for the right scenario at the right time and with the right model, following the shortest route to market.

For this purpose, we have established multiple industry-focused teams, including for finance, mining, government public services, transportation, and electric power, as independent units. These teams delve deep into the needs and challenges of their target industries and collaborate with partners to create industry-specific solutions. By leveraging our technologies and capabilities, we aim to become the preferred partner for industries as they go digital, intelligent, and green. In doing so, we can pave the way for our own long-term growth too.

Second, we continue to optimize our business portfolio to improve resilience. Optimizing our business portfolio is an effort we have continued over the years, which now covers a mix of ICT infrastructure, smart devices, Huawei Cloud, digital power, intelligent automotive solutions, backed by technological support platforms like 2012 Laboratories and HiSilicon. This portfolio includes our well-established business domains and new, more pioneering domains. Some are developing stably while others are growing rapidly. Some rely on advanced processes and others don't. Some are hardware-centric while others are software-centric. In terms of structure and growth potential, they constitute a resilient business portfolio, forming a solid basis for Huawei's sustainable survival and development.

This is the differentiation that Huawei has versus other competitors who appear in this industry. We strengthen the synergy between chips, software, hardware, devices, networking, and cloud to build differentiation and competitive advantage. Through three years of concerted effort, we have built relatively strong competitiveness in business domains, and we have good reason to believe we can maintain this edge for the foreseeable future. But given our inability to have access to advanced processes, we need to keep exploring ways to further enhance our products and services for long-term competitiveness.

We have the most comprehensive set of technologies in ICT and think this is our unique advantage. We will step up integrated innovation across tech domains, namely chips, software, hardware, devices, networks, and cloud, to ensure every bit of data can be collected, transmitted, processed, and presented in an optimal way. Delivering simplified architecture, high quality, optimal costs, and a unique experience is our goal. We're working hard to optimize network performance, network power consumption, consumer experience for devices, intelligent vehicles, cloud resource utilization, cloud application performance, O&M efficiency, and service capabilities.

In these ways and more, we are creating new value for our customers. We will keep honing our capability, both during leadership of our products and solutions into the future.

Next one is succeeding through quality. Aiming for high quality is a part of Huawei culture. Through decades of hard work, the Huawei brand has become a byword for high quality in the ICT industry. External restrictions are now our new normal. It's more important than ever that we commit ourselves to maintaining this reputation and winning with high quality. To this end, we need to further strengthen Total Quality Management based on ISO 9000 standards and implement strategy-driven, all-hands, and full-process quality management across our entire value chain.

In alignment with our customers' needs, we need to move forward on end-to-end tracks to build a truly end-to-end quality management system, incorporating quality requirements into all business processes and providing our customers with quality products and services to win over customers and gain their trust. One track is customer-driven, from customer needs to customer satisfaction, and the other is strategy-driven, from strategy development to execution. These quality requirements don't stop at products or services and contracts, but also cover cybersecurity, safety, and operational compliance.

In addition, we need to extend our quality management mechanisms and requirements to every part of the supply chain that we've restructured over the past few years. We need to invest more and improve quality together with our suppliers in order to deliver high quality to our customers.

We also have heavy R&D investment to ensure a high level of business continuity and product competitiveness. Our business continuity touches upon multiple aspects, including the continuity of our supply, product development, manufacturing, and IT systems. Through years of hard work, we have made significant progress in component risk management, replacement, board redesign, operating systems, databases, product development tools, CRM, ERP, PDM, and NMS. In these areas, we have what's needed to keep going, but there are still gaps in terms of leadership, use, and long-term sustainability. Going forward, sustaining or even increasing R&D investment in these areas will be crucial for us to ensure a high level of business continuity and non-stop innovation. Our efforts in architectural restructuring, systems engineering, and better designs will take the competitiveness of our products to new heights.

As long as we maintain a high level of business continuity and deliver competitive products, we can ensure Huawei's sustainable survival and development. In 2023 and the coming years, sustainable survival and development will remain a strategic focus for Huawei today. I think that's also an area all customers, industry peers, and our Huawei employees keep a close eye on. All the five strategic initiatives are also things we're going to work on for the future.

Today, Huawei is like a plum blossom. Plum blossoms tend to grow sweeter from a harsh winter's freeze. While it's true that we have considerable pressures ahead of us, we still see opportunities to grow. A resilient business portfolio, a unique competitive edge, the trust of our customers and partners, and the courage to invest heavily in R&D—we're confident in rising above any challenge, laying a solid foundation for sustainable survival and development. Thank you, thank you very much.

I want to clarify a little bit. It's not Huawei that resolves the EDA tools for chip design at 14 nanometers and above, but rather Huawei and its partners working together to deliver domestic EDA tools needed for the chip design at 14 nanometers and above. This delivery in domestic EDA tools for 14 nanometers and above, I think it means very little for Huawei's own business lines. It only means that the chip design companies in China can have China's own EDA design tools as they design chips in the future.

Speaking of semiconductors or chips, I think this is probably the most heatedly discussed question or topic over the last couple of years on a global basis. For China's semiconductor industry, what we have seen over the last couple of years is a continuous stream of sanctions. And I believe China's semiconductor industry will not sit idly by but take efforts to self-save, take efforts around self-saving, self-strengthening, and self-reliance. We will render our support to all such self-saving, self-strengthening, and self-reliance efforts of the Chinese semiconductor industry. And I believe China's semiconductor industry would get reborn under such sanctions and realize a very strong and self-reliant industry in China. Thank you.

In all the business domains that we work on, we have been working on technology research and development. To give you a very clear picture of those, I think it may take several days. But if you narrow that down to the communications industry, our focus includes 5.5G for mobile communications, and then after 5.5G and the M 5.5G, the eagle functions. First on 5.5G, we work together with the industry peers to define standards for 5.5G. And we also work together to try to overcome technologies that are needed to support the use cases of 5.5G. Now, we also work on the development of 5.5G products with the hope that these products can start to get deployed around the world starting from 2025. With these 5.5G technologies and their products, we hope consumers can have a much better experience in mobile, home, and office environments. At the same time, we hope all these 5.5G technologies can better promote digital and intelligent transformation of various industries.

Then speaking of 6G, I think it comes back to the same topic as the time when I talk about the 5G systems. First, what is 6G? I think nobody can give a clear answer right now. It's just a concept or an objective for the mobile communications industry. At a time when 5G was about to come, I said the same thing again. Therefore, right now, Huawei is working with the entire industry trying to define what 6G is. Of course, we are doing research and verification of technologies that might be used for the future 6G. But when 6G would come, it's not yet clear. But based on the history of mobile communications, we estimate 6G would be available after the year of 2030.

If the demand for applications do not improve or change in a very big way, if the industries' demand for mobile communication networks do not change or improve substantially, maybe 6G may not be needed. Yes. Because once there is no demand, no companies would be willing to make the investment for the lack of compelling return on investment. If that's the case, it could be very natural for our industry, for society, to stay in the future 5.5G era. Telecom operators and equipment vendors such as ourselves all hope that 6G would arrive someday, or otherwise there will be no growth potential for our industry, because consumers like yourselves won't be buying new phones. The duration for consumers to change their mobile phones used to be two years, and now it's three years. We have seen significant drop of demand for consumer electronics, especially smartphones, in China, and that's also the case on a global basis. Therefore, we truly hope that 6G can come, even though we are not clear whether that will come and when that will come. Maybe 6G will only come after 2030. Thank you.

For our supply chain strategy, first, we work to ensure business continuity. We also work to ensure we can deliver on our promises and commitments to customers. Managing supply chain for Huawei is not an effort we just started from recent years. That effort actually started since 2012. Actually, we had this 'spare tire' or so-called Plan B program starting from 2012, and that program only got exposed with the open letter of Ren after Huawei was placed under U.S. sanctions in 2019. Our hope is for all of Huawei products, we would not rely on any single country or any single supplier, and we would have the ability to continue to supply to the market even under very challenging circumstances. Since 2012 till today, we have been working non-stop on business continuity and on a stable supply to our customers. And as part of that effort, we have been working on component replacement and circuit board development. That's actually a cumulative process. As for our future directions, it remains the same, which is to ensure supply continuity and ensure our sustainability of delivering our promises to customers. Thank you.

I think I somewhat had touched upon this in my presentation. Over the last couple of years, we have been working to optimize our business portfolio with the hope to build a resilient portfolio of the businesses. The digital power business and the Huawei Cloud business used to be part of the ICT infrastructure in our financial reporting, and now they are separately listed. And our hope is for these businesses to enjoy better development. We are very pleased to see that with our efforts over the last couple of years, this business portfolio becomes more rational and becomes more resilient, laying the groundwork for continuous survival and the development of Huawei. 2023 will continue to be very challenging for Huawei. As I said in my presentation, we will continue to keep racing ahead amid the storm. We are faced with more and more uncertainties and non-market factors. But we hope through our own efforts, we can somewhat grow our revenue and profits in 2023 in comparison to 2022. But still, there are too many uncertainties along the way. And certainly, you're going to see those results the same time next year. Thank you.

We all know the mobile phone business of Huawei has been hit the hardest under the sanctions. We used to be number two on a global basis, or according to Richard Yu, we were number one, but now we are in the category of 'others'. This is because the U.S. Commerce Department only grants licenses for 4G mobile chips. As a result, we can only produce 4G phones. And because of our efforts and because of the progress we have made in camera, in foldable screen, and in user experience, still there are consumers that are willing to buy Huawei's 4G phones. Take this Mate X3 for example, it's a 4G phone, but even it's a foldable screen form, the weight of it is similar to a regular smartphone. If consumers want to buy 5G phones from Huawei, we may need to have the approval from the U.S. Commerce Department. If they can grant licenses for 5G mobile chips, and then we might be in a position to produce 5G phones, and actually 5G phones with foldable screens. Thank you.

Indeed, we are under significant pressure from an operation perspective, and that pressure comes from, as I already mentioned just now, continued decline of our revenue from the device business, increase of commodity prices, and also more investment in R&D as part of our business continuity program. Even with such pressure, I believe we will not change our business strategy of bringing on board the brightest minds of the world. We hope there will be more and more like-minded bright minds and scientists that can join Huawei on our path towards the Mount Everest and to address the challenges and the difficulties along the way. We are not taking the approach where only the education background of our people matters. Any employee that can match the requirements of his or her job is an outstanding employee for Huawei, and we do need a large number of employees with the spirit of craftsmanship to safeguard the long-term operation and prosperity of the company. Overall, no matter what is the type or category of individuals, as long as they are outstanding, they are professional, and they are down to earth, they would be the outstanding employees for Huawei. At the same time, regardless of the operational and business pressure we might encounter, we will continue to remain open-minded in bringing on board outstanding people to join Huawei. Thank you.

I think answering this question right now is much easier than what I previously thought, because we just released the latest resolution around Huawei not making cars. Actually, that's the second time we issued that resolution. Some people might be concerned about the validity of that resolution, saying this resolution only covers five years. As a matter of fact, this five-year period is not only specific to the automobile business. All of Huawei's documents and resolutions have a validity period of five years maximum. So after the document is about to expire, we can actually reissue the resolution. Our strategy for this business is not changed. Huawei does not make its own cars. We help car makers to build better vehicles for the future. We position ourselves as a supplier of newly added components for intelligent connected vehicles. Recently, as you said, some departments, some individuals, or some of our partners were abusing the Huawei brand. We are actually in the process of finding out who is accountable. The Huawei brand has been built over the last 30-plus years, and we will not allow our brand to be abused. Huawei does not make Huawei cars, and there is no such thing as Huawei-branded cars. In the resolution we just released, we also had very clear requirements regarding the use of the Huawei brand. It is prohibited for Huawei brands to appear together with any car brand or appear on the exteriors of vehicles. We will take actions that will cover all the flagship stores, retail stores, as well as marketing collaterals to ensure this resolution gets executed. And our strategy and our positioning will remain the same. Thank you for that question.

First, I want to clarify. Mr. Ren said that was done within three years. I think maybe he doesn't remember correctly. I think it's at least 10 years. As I mentioned just now, we started such efforts since the year of 2012. As Sabrina mentioned just now, right now we already returned to business as usual. Since the U.S. sanctions are part of the new normal right now, that also applies to our R&D efforts. All of our R&D teams right now will work on improving or continuously improving the product competitiveness and doing better in accommodating customer requirements and doing better in creating value for customers. Thank you.

And I'm very pleased to see that you right now are in Huawei Singapore Open Lab. I heard we just got an upgrade to Open Lab 3.0. As a matter of fact, not just in Singapore, we have a set of open labs in many countries around the world. This is an open platform that we made available to all of our customers and partners around the world. The idea is to help our partners and customers to leverage Huawei technologies and their capabilities in developing competitive solutions for various industries. We welcome all our partners as well as customers into this Open Lab facilities, and we also welcome joint discussions with Huawei around the requirements and the possible direction of solutions, so that we can truly deliver solutions that can address customer needs, that can address customer problems, and that can deliver value to customers. Our commitment to various countries, customers, and partners in the APAC region will not change, and we will continue to strengthen our investment, including R&D and other areas, in the APAC region. Thank you.