Huawei founder Ren Zhengfei urges employees to prepare for hard days ahead and focus on profit not sales

Ren told employees in a memo that they should focus on profits and cash flows instead of revenue to ensure the company’s survival
The internal warning indicates Huawei is in crisis management mode amid falling revenues and profits

Huawei

Iris Dengin Shenzhen

Published: 8:00pm, 23 Aug, 2022

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Ren Zhengfei, founder of Huawei Technologies Co, has written an internal memo to employees urging them to focus on profitability as opposed to sales, as the Chinese telecoms giant prepares to endure a global economic recession, according to people familiar with the situation who saw the memo.

Ren, who is 77 and still the undisputed leader of the Chinese technology giant, told employees that they should focus on profits and cash flows instead of revenue to ensure the company’s survival over the next three years, according to Chinese media outlet Yicai, which first reported the memo. Ren said Huawei would scale back or divest noncore businesses, signalling that more job cuts could follow after the company’s headcount shrank by 2,000 in 2021, the first drop since 2008.

Huawei declined to confirm or deny the internal memo.

The internal memo was intended to “send a chill to everyone” as the company’s survival is at stake amid the impact of US trade sanctions, Ren wrote. He added the next two years would be key and that employees should face reality when making forecasts about the business. “No more stories, we have to talk about the realities,” the memo states. “We have to survive first, and we’ll have a future if we can survive”, said Ren in the memo.

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The internal warning indicates Huawei is in crisis management mode amid falling revenue and profit. Huawei saw its revenue shrink further in the first half of 2022 with a 5.9 per cent year on year decline to 301.6 billion yuan (US$44.7 billion), with its net profit margin at 5 per cent, down from 9.8 per cent in the same period last year.

Revenue from the device business group, which includes smartphone sales, fell 25.4 per cent to 101.3 billion yuan from 135.7 billion yuan in the same period last year, as it continued to lose market share, both in China and overseas. Since 2019, Huawei has found itself at the centre of an escalating US-China trade war and has been banned from buying advanced US-origin technology, such as the chips that power its smartphones.

The telecommunications giant has struggled to diversify its revenue streams as it seeks to remake itself as an enterprise services giant. Some of its efforts include signing up partners for its own operating system HarmonyOS as an Android replacement, and forays into new business areas such as software for the auto industry and providing cloud computing and other digital solutions for government and corporates.

In May, the company set up five new so-called legions to focus on specific industries that include digital finance, energy, machine vision, manufacturing digitalisation and public services, adding to the existing legions – essentially cross-departmental teams – established by Huawei since starting the initiative in October last year.

Huawei, which once briefly overtook Apple and Samsung Electronics in global smartphone sales, saw revenue at its consumer business group – as the devices unit was then known – slump 49.6 per cent year on year in 2021, after 3.3 per cent growth in 2020 and a 34 per cent increase in 2019.

Huawei’s headcount shrinks for first time since 2008

The company is yet to give up on the smartphone segment. Huawei said that it will introduce the latest edition of its Mate-series smartphones on September 6, more than a year after the Chinese company skipped the annual refresh of this premium handset line amid a challenging period for the China market and as it struggled with US sanctions.