Field Notes: Highlights from Huawei

Editor’s note: Since we closely follow China and the global nature of tech in general, among other topics related to innovation, here are highlights from a two-hour interview that Ren Zhengfei, the founder and CEO of Huawei (the world’s largest manufacturer of telecommunications equipment and second largest manufacturer of smartphones) gave to Chinese media in Shenzhen, China on May 21.

We are sharing these here as “field notes” — a translated version of highlights from the interview (you can also find the full version here), without any commentary — in the spirit of other such notes we’ve shared, where some event, conference, or research was summarized and shared internally first for our own learning. Given this is not currently available in U.S. media, we are posting it here in the spirit of understanding what is being said on all sides of the U.S./China trade dispute, no matter your views. For other content from us and others related to some of these topics, see also these links on: trade; global innovation; and China. Please also see a16z.com/disclosures as none of this is investment advice. 

…on the U.S. trade block

The “90-day temporary license” of the United States does not make much sense to us. We have already made preparations [to address the sanctions], yet we are still very grateful to the American companies. They have made a lot of contributions to us — many of our consultants are from American companies such as IBM.

If people want to scold someone, scold the American politicians. This matter is not about American companies. The United States abides by the rule of law; American companies cannot fail to comply with the law. American politicians’ current actions underestimate our [business] strength.

The United States does not have the power to call on all other countries to close the door to Huawei. Every country has their own plans for foreign investment, and you [the Chinese media] should not be overly emotional.

…on a Google and Huawei phone operating system

[Following news that Google has cut off technical support and updates for Huawei phones]: Google is a good, highly responsible company. Google and Huawei are discussing together how to implement a solution.

We can make operating systems, but they are not necessarily a substitute for existing operating systems.

…on microchips

We will not easily function without U.S. chips. We want to grow together, but if there are supply difficulties, we have backup plans. In less turbulent times we use half American chips and half Huawei-built chips. We cannot be isolated from the world.

Although our own chips are much cheaper, we still buy American chips. We should integrate into this world, and I think American companies are friendly. By integrating alongside our American counterparts, our company can survive and prosper. Our achievements cannot be destroyed by a mere news report. In the future, we are still willing to cooperate with American companies. To start with, however, we have to get approval from Washington.

We can make the same chips as the U.S., but it does not mean that we do not want to buy them.

…on Huawei’s 5G 

5G’s data capacity is 20 times that of 4G or 10,000 times that of 2G, with 10 times less power consumption. We are having very intimate discussions with Europe — every Huawei station in Europe will save 10,000 Euros.

Huawei’s 5G [rollout] is not affected. In terms of 5G technology, others will not be able to catch up with Huawei for two or three years. We should not be beaten up because we are ahead of the US.

…on “ideals”

We made individual sacrifices, familial sacrifices, and sacrificed for our parents. All this is for an ideal — to be the best in the world.

For this ideal, there will certainly be challenges. We [previously experienced] challenge around the year 2000. We had prepared to sell our company for 10 billion US dollars to an American company. All the contracts were signed and all the formalities were completed — we just had to wait for their board of directors to approve it. We [spent considerable time] wearing colorful beach clothes, running on the beach, playing soccer, while waiting for the approval. In the end, the personnel on the acquirer’s board of directors changed and ultimately rejected the acquisition.

As we were preparing to sell our company to an American company, we thought that we could help Americans to run the business [in China]. I found that the younger generation of our company disagreed with selling our company. So I said: we have to prepare for anything because we will eventually compete against the Americans. I said to be prepared for anything, and we have prepared since that very day.

In terms of preparations for challenge, we are still a company with limited cash. We pay nearly 20 billion USD in taxes. Our technology budget is nearly 20 billion USD; our personnel budget is another 30 billion USD. Under these conditions, paying a lot of money to do projects is very difficult. It took years of nail biting stress to gradually accomplish our goals.

Huawei does not readily permit investment capital to come into [our business], because the short sighted nature of capital greed would undermine the realization of our ideals.

Our greatest social responsibility is building connectivity for human beings. Three billion people around the world are connected by us. Because Africa is less lucrative, Western countries do not go there. We have connected the region. In a way, if Huawei did not exist, then the world would be a place with more threats and challenges.

…on opening up [and reforming] the Chinese economy

The past policy was to make large monetary investments, however for making chips, investing large amounts of money is not going to be enough. We should also focus on educating mathematicians and physicists [in China], but [we must remember], how many people are currently studying in universities?

It is clear that it is impossible to rely on a single country. Although China has a lot of talent, we must also find talents from across the globe. It is difficult for Chinese physicists and chemists to rely entirely on their own innovations. It is very difficult to rely solely on Chinese innovation alone. Why can’t we embrace this world and rely on global innovation? We should learn from other countries. Wherever exists the best innovation, we should be there.

The research centers in the United States are constantly producing top-tier Chinese scientists. China has 5,000 years of civilization and a good foundation — we must come up with policies to embrace the world. Everyone sees that countries in Eastern Europe are relatively poor, but many ideas in the United States have spread to Eastern Europe. Eastern Europeans have come to China and use China as their home base. I think the way forward is more clear than ever: China must learn industrial technology, chemistry, neurology, brain science, and other [critical] fields. Only then can we stand up in this world.

After these sets of U.S.-China talks ended, CCTV said “We must open up and reform” — I was very happy. In fact, it has taken us a while to open up and reform. WTO membership comes with commitments; after we receive the benefits we must honor them. By making more sacrifices we can unite more friends.

…on the White House ban

Huawei will definitely continue to serve customers. Last week was the [cell phone 5G network] bidding. Of 40 cities in China, we won 37 cities. Our production capacity is significant; it’s not that we have no quantity because of the US ban. Our growth rate will neither be too fast, nor as slow as we imagined. We are at 39% in the first quarter, and we will not record negative growth or harm the growth of this industry.

Huawei will not go out of business; we are prepared. During this Chinese New Year this year, we judged that this could not happen for another two years. Two years is enough time to prepare.

Following the incident with Meng Wanzhou [Ren’s daughter/Huawei CFO facing extradition in Canada], we now believe that the two years has been pushed forward, way ahead of schedule. As a result, we worked overtime during this Chinese New Year. Security guards, cleaners, service personnel, in total 5,000 people worked overtime. Our rank and file employees worked [on their holiday] for double pay and fought against time in this manner.

…on U.S. technology

The depth and breadth of American technology is still worth admiring. Many small companies have advanced and precise products. In our business (5G), we sit at the forefront, but as far as [China’s] overall technology is concerned, we are far behind the United States

…on the “Spare Tire” Plan

[The Spare Tire Plan is Huawei’s backup plan to ensure a steady supply of microchips in the event of supply disruption.] If you look at all of the documents of [Huawei’s] Chairman’s office, they are all publicly available. The documents of the past eight years can be examined. I have said over and over again to look at them, only when America ‘hits’ us do people care to read these prior documents.

A spare tire is to keep the car running when it is broken down… a lot of parts have already gone into production, but outside parts are still being ordered. We have some marginal products that do not have “spare tires”. These products will be discontinued sooner or later – this will have a negative impact. But in our most advanced areas, there will be no impact.

Every year we buy at least 50 million sets of Qualcomm chips, and we never experienced any issues. Not 50 million chips, but 50 million chip sets. We have never ever resisted buying American. In many ways, the biggest ‘spare tire’ for world peace are the nuclear weapons [never to be used]. [Huawei never intended to use its own chips, the “spare tires”.]

Keeping spare tires [the Huawei home-made chips] as backup is the logical norm of survival for our company. Admittedly, the ban by the United States will still be a significant challenge for us to bear even [though we are a more mature company] with our many years of operational history. It appears we must use the spare tires given [the reality of] our situation. Even if these chips are not ready, we must still use these chips because of our situation.

…on Huawei research

Huawei has about 700 mathematicians, 800 physicists, 120 chemists, six or seven thousand basic research experts, and more than 60,000 engineers. We have compiled more than 15,000 research experts to turn capital investment into knowledge. We have more than 60,000 practical personnel to develop products and turn that same knowledge back into capital [into revenue]. We have always supported scientists outside the company to conduct research.

…on family

The people I am most indebted to in my life are my own children. I was too busy when I started this business and I failed to spend enough time with them. When I was younger, the company was in a constant struggle to stay alive. I often had no contact with my own children for months at a time. In a way, I failed my own children.

My children are very demanding of themselves and work very hard. For example, when my younger daughter was a child, she danced for over 15 hours every week. When she was in college, she would diligently do her own homework until 4 or even 5 am.

…on domestic [Chinese] public opinion

My family uses Apple’s phones; Apple’s ecology is very good. When family members travel abroad, I would gift them an Apple computer. One can’t narrow-mindedly believe that if you love Huawei then you must only use Huawei mobile phones.

At present, public sentiment about Huawei is being spun in one of two ways. The first spin is that if you are patriotic then you should buy Huawei. The other spin is that Huawei has hijacked the patriotic sentiment of the people. [But this is just spin] after all, my own child doesn’t love Huawei [product], my own child loves Apple [product].

Acknowledgements: Thank you to Avery Segal for the translation help.