Hello.
Let’s start with what the founder of Huawei said in an internal memo: “Huawei must reduce any overly optimistic expectations regarding the future, until 2023 or even 2025, we must make survival the most important guideline and not only survive, but survive qualitatively.” The note is notable for the fact that not bad analysts work for the founder of Huawei, who understand the state of the global economy and what awaits us in the near future. Let me give you one more quote from Ren Zhengfei: “Everyone will feel the cold.” The focus on profit is becoming key for Huawei, in the next three years the cash flow is not so important, the company may experience job cuts, abandonment of investments, closure of areas that did not have time to take off. The note says it bluntly: “Survive and make some money where we can. From this point of view, we need to adjust the structure of the market and examine what can be done and what should be abandoned.”
The letter produced the effect of an exploding bomb, and in different parts of the world it was perceived very differently. In Europe, they described the Huawei situation as typical of the Chinese economy, which is going through hard times, while pretending that what is happening does not concern them. In the US, they celebrated their own sanctions, which “kneeled” Huawei, although nothing like this is even close. The feeling that everyone used this letter within their own ideas regarding propaganda, but almost no one heard regarding the serious threat that is looming over the whole world. Here we can recall deglobalization, recall inflation, which is just beginning to accelerate. Huawei’s situation is not as bad as it might seem from the outside. The company makes a profit, does not feel sentimental regarding what needs to be cut to the quick. Unlike European and American companies, business in China takes the best of all worlds, now Huawei is not just in good shape, the company is aggressively changing itself, forcing its divisions to learn to live in a new reality, in fact, move from well-fed years to starvation rations. In an ideal world, all large corporations should have done this, but they do not see the problems or close their eyes so as not to spoil their picture of the future. Leafing through the first reports for the third quarter of 2022, I caught myself thinking that denial of the deepest global crisis has become the norm, financiers and company executives pretend that everything is in order and there simply are no problems today.
The description of the crisis in Huawei’s internal letter is not fiction, in fact it was a guide to action, some of which began much earlier. The company completely revised all product groups, redistributed development budgets, the company really switched to survival mode.
In 2019, Huawei switched from experiments to the production of TVs, for the most part they were focused on ordinary consumers, and the category of devices was called “smart” screens, in fact, they did not have a TV tuner itself. Such TVs were produced both under the Honor brand, while it was owned by Huawei, and under its own brand later. Given the high competition in this product segment, Huawei was not able to achieve great success, the company’s investment was perceived as long-term, aimed at creating an ecosystem of products, in which, in addition to smart accessories, smartphones and tablets, there should also be a big screen. After analyzing the achievements of this direction, it was de facto decided to curtail it, there were no official announcements regarding this, but all TV models disappeared from the roadmap. The people responsible for their development in China have already been transferred to other projects. In fact, we are talking regarding the fact that in a short time, Huawei abandoned the product category, which did not bring money here and now. Knowing the size of the company, one is amazed at how quickly such a decision was made, how quickly they cut it. Looking back at the past and European or American companies, I can say that it takes them from six months (very quickly!) to one and a half to two years to make such decisions, it is very difficult for them to abandon projects that have appeared and are stretching into the future. There are endless discussions, attempts to change something and revive the project. But nothing happens.
Huawei is not going to abandon smartphones, despite the fact that this division is completely dependent on the supply of American companies, de facto is under external control by US officials. Huawei came under sanctions and, in order to release smartphones, agreed to a number of restrictions; today the company cannot add 5G support to its devices. This looks extremely strange, since Huawei is number one in infrastructure, actively developing 5G, but cannot use this technology in its user devices. The restrictions imposed by the United States, Huawei is trying to comply.
The reason for indulging US sanctions lies in a simple calculation, the arithmetic here is banal – there are countries where Huawei operates, and a total ban will mean that they will have their own market and several other countries, albeit as large and prominent as Russia. As long as business in territories directly or indirectly controlled by the United States (which is most of Europe) accounts for a significant share of sales, the company will not directly violate the sanctions regime. But every month there will be fewer and fewer reasons not to do this. The explanation is that the market itself will shrink, Europe is going through one of the deepest crises in which it has not even entered yet. The sky is clear, there are leaks in the bottom of the ship, but it continues to sail. It seems that there will be no storm and there is a safe port somewhere ahead. The illusion of security creates a deceptive picture of the world.
The only question today is at what point companies will start grabbing any buyer. European operators are already reducing purchases of equipment to a minimum, refusing everything that is possible. Only a minimum of purchases, only the most necessary.
The example of Russia clearly shows that people are starting to buy more rationally, paying less and less attention to nameplates and brand names. The rise of Chinese companies is mind-blowing, Haier has become a premium manufacturer (everyone would have laughed at this a couple of years ago), newcomers like Tecno sell tons of smartphones, and people love them. It seems that Huawei should have excellent positions here, but due to sanctions this did not happen, the company is gradually increasing momentum and returning to normal life. The emphasis is on accessories, watches and the like, smartphones are also important, but the game is in the affordable segment. Pay attention to the autumn promo campaigns in Russia, the emphasis in them is on mass models.
And this is the right change in strategy, when expensive models remain a niche offer that is far from accessible to everyone. Money in our time is made in the mass segment, the demonstration of technology is important, but fades into the background. Remember how Huawei promoted cameras in their devices? Partnership with Leica, which was then discontinued. The same Huawei P50 Pro, which appeared on the market for almost a year and a half, carried the Leica name back, now it has been abandoned. Exactly the same model, but without someone else’s brand – the quality of the pictures has not changed in any way, but someone will be able to spot the “difference”, people are suggestible creatures.
The rejection of such cooperation is also a sign of the times, you need to save as much as possible, the efficiency of products comes to the fore. And if a smartphone with some additional brand on the case costs 10-15 dollars more, then to hell with this brand – it does not play any role.
Whether we like it or not, a new world is opening up for us, in which large companies are switching to energy saving mode, but not all of them are ready for this. Many simply did not realize that the crisis was for a long time. As the founder of Huawei said, we need to tighten our belts and prepare for the fact that, in the optimistic scenario, things will get better in 2025. But it seems to me that he said this to calm down, so as not to escalate horror. Things will start to get better a little later and obviously not for everyone.
