‘No bright spot in the world’: Huawei founder warns of painful global slowdown, tells company to prepare for ‘survival’

In a leaked email intended only for company staff, CEO Ren Zhengfei warned that there would be “no bright spot in the world” for three to five years – a “very painful historical period”. as the global economy declines. His comments were first reported by Chinese financial publication Yicai – and have since been removed from the site – as well as other local media.

Over the next decade, global economic conditions will continue to deteriorate due to Russia’s war on Ukraine and the continued effects of the COVID-19 pandemic, according to Ren.

As a result, he said, Huawei, the world’s third-largest smartphone maker, needs to go into “survival mode” to secure profits and ensure cash flow, rather than focusing on scale and expansion. .

“The cold will be felt by everyone,” Ren said.

‘Survival Mode’

Ren’s comments come amid a brutal year for his company and his country. In the first half of this year, Huawei’s profits fell 52% to $2 billion, according to Reuters calculations.

The company has battled multiple headwinds, including a continued slowdown in consumer activity, as well as a weak Chinese economy, deepening housing crisis and ongoing pandemic disruption exacerbated by the government’s strict pursuit of “zero -COVID”.

Domestic Chinese companies face an equally difficult road. Beijing has largely abandoned its previous economic growth target of 5.5%, saying at the latest meeting of its Politburo – the government’s top decision-making body – that it simply wants to achieve “the best outcome”. The International Monetary Fund recently lowered China’s growth in 2022 to 3.3%, the lowest level in four decades.

For Huawei, “first we have to survive, then we can talk about the future,” Ren said. “If we want any hope by 2025, then first we have to find a way to get through the next three years, which will be very difficult.”

Huawei did not immediately respond to Fortune’s request for comment.

The smartphone and telecom giant is expected to focus on its core businesses, which include cloud computing and smart cars, the founder said. Huawei should reduce its non-core segments and markets and cut jobs if necessary, he added.

“Companies that cannot generate value and profits in the next few years should be reduced or closed. We need to scale back quickly and any excess staff need to accommodate this forecast,” he wrote.

Facing reality

Along with a stern warning about the need to focus on survival, Ren also stressed that the company should not pursue “blind expansion”.

Over the past decade, Huawei has pursued a rapid growth strategy – it operated in 170 countries in 2018 – focused on winning over consumers in the West and those in emerging economies. It has also signed major contracts to build 5G networks in Europe and Africa.

That changed in 2019 when the US Department of Commerce placed Huawei on its Entity List – the country’s trade restriction blacklist – for national security reasons. The U.S. ruling against Huawei barred it from accessing critical U.S. technologies such as semiconductor chips, hurting its smartphone sales.

In the first quarter of 2021, Huawei’s global smartphone market share fell below 4%, from a peak of 20% in the second quarter of 2020, according to market research firm Counterpoint. At the end of last year, revenue from the company’s consumer business plunged nearly 50% to $38 billion.

Huawei’s revenue in the first half of this year reached nearly $45 billion, helped by its telecommunications infrastructure division, while its consumer segment was still struggling.

“We used to embrace the ideal of globalization and aspired to serve all mankind,” Ren wrote. Now, “[we] do not have high ideals. We have to face reality, adapt… and study where we can [earn money] and which places and segments should be abandoned.

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