March 25, 2020
01 Neil Western, Asia Business Editor, The Wall Street Journal: Thank you for taking the time to talk with us again. We really appreciate it. Unfortunately, we can't be there. The coronavirus is keeping a lot of people working from home and quarantined. I hope you are doing well, and we'll start. Can you tell us a little bit about how the coronavirus has affected your operations?
Ren: The COVID-19 outbreak has had some impact on our production, sales, and delivery. Our company resumed operations on February 1, so our business operations have not been impacted. Initially, about 70% of our employees returned to work, and that percentage has gradually increased to 80%, and then 90%. However, some cities in China are still under lockdown, so not all employees are back in the office yet, but more than 90% of our employees are now working in the office.
The COVID-19 outbreak has also affected the production capacity of our suppliers. Some of them are small factories that didn't meet the sanitary requirements for resuming operations, and were banned from doing so by the local governments. So we helped meet the sanitary requirements, and persuade the local governments to allow our suppliers to resume operations under the precondition of ensuring the health of their employees.
We have also seen some impact on our international logistics. The number of international flights has been cut significantly, and air freight is costly, up three to five times. This has had some impact on us, and we may reduce the numbers we set in our business plan for Q1, but I don't think our annual plan will be affected.
Dan Strumpf, technology reporter based in Hong Kong, The Wall Street Journal: Thanks a lot, Mr. Ren, for that background. When you say you have reduced your numbers, you said your revenue numbers or your financial numbers? Could you be more specific about that?
Ren: I mean our revenue numbers for Q1.
Dan Strumpf: By how much have you reduced that target? Can you give us some specifics as to what the effects are?
Ren: The specific numbers will not be available until mid-April, but overall it will be a very small adjustment to our targets. The supply of some components and customs clearance in some countries have been affected by the pandemic. In addition, our project delivery may be affected as some people are being quarantined and isolated at home. However, the overall impact on our company is not significant.
Dan Strumpf: Now, that's interesting that you mentioned the issues with quarantines, isolations, and customs and crossing borders, and because obviously Huawei is a global company, crossing international borders has become so much more difficult right now given what's going on. How are you able to compete around the world in a situation like this where there are so many travel bans in place? And I'm just curious too, how has it affected your personal routines and management style at Huawei?
Ren: Look at this remote interview we're having now; we've adopted a similar approach when it comes to managing the company during the COVID-19 crisis. Employees can work from home, and use teleconferencing for meetings. In addition, we have taken measures to reduce the amount of international travel required for our employees. The vast majority of employees only move around locally.
Many of our international contracts are about network expansion, and there's no need to send people to the field to fulfill them. Instead, we can simply fulfill the contracts from our equipment rooms, carrying out software upgrades remotely. So our contract sales can continue to grow.
Dan Strumpf: Mr. Ren, have you changed your habits, your routines at Huawei? What have you been doing differently as a result of this new world?
Ren: I don't see much change in our habits. For executives at Huawei, our work is to have meetings, revise corporate documents, and then get these documents published so that employees can act upon them. That's how we did things in the past and that's the same today. There hasn't been much change.
Now we have meetings over video, so the pandemic basically has no impact on us. Maybe in the past we had to take flights to meet face to face, but now we don't need to. Because even if we fly somewhere, we would still have to go through quarantine, and we would end up meeting over video as well. What's the point of taking the flight?
Dan Strumpf: Do you think that whenever it is that things return to normal, if those changes will stay in place, that there will be more remote meetings and, perhaps, less international travel? Do you think that those changes will stay?
Ren: I think humanity is entering an information society. IBM calls this the "Global Village". With planes, of course, we can travel anywhere quickly. This is a characteristic of the Global Village. In the past, you would have traveled by ship, which would have taken months. If we look even further back into history, our ancestors had to cross entire oceans with wooden sailboats.
Now, with advanced communications networks, we can chat over video as if we were sitting next to each other. However, we can't have a cup of coffee online together, because we can't drink through the screen. So barring these kinds of physical experiences, we will see more online information exchanges in the future. For example, during this pandemic, hundreds of millions of Chinese children have started taking online courses at home. There are also many students in the US and in Europe taking international courses online. Once people get used to this approach, it won't be easy to get rid of it. The number of users or how often they access the service may decrease, but this new approach isn't going to go away any time soon. As an equipment vendor, we strive to meet customer needs in this regard.
Neil Western: Mr. Ren, I know you always find yourself traveling around the world to meet grassroots employees firsthand. How are you able to keep communicating and getting advice from them?
Ren: That's because I've already traveled to almost all those least developed countries, to learn about how our employees work and what their lives look like. Today we can communicate over video and collect feedback from our employees through our internal BBS instead. This way, we can understand how they work and live in other countries. Then, we will know how to improve the environment and situation to support their work. That's how our past travel experiences have helped. If we don't travel around the world, we don't develop an accurate sense of it. So even though we're now isolated in different places around the world, our engagement and communication with each other is uninterrupted.
02 Neil Western: Can we turn, Mr. Ren, to the difficulties you have had with the US administration over the past 18 months? First of all, when we last met, we spoke about your daughter. Have you been in touch with her lately? How are you communicating? What kind of conversations are you having?
Ren: We talk to each other over the phone. We usually talk about how everything is going in our lives. Her mother and her husband are currently in Canada keeping her company, so she's not alone there.
Neil Western: How is she doing with regards to the criminal case, and what are you doing personally on that front?
Ren: We have committed no criminal offence, and we have already made our case to the US court. We are still pursuing these matters with the US District Court for the Eastern District of New York.
Neil Western: Do you believe that the Canadian government should play a role, in your point of view?
Ren: Canada is a country ruled by law. That means its legal system should be open, fair, just, and transparent. We believe that the legal system of Canada will arrive at the right conclusion in the end.
Neil Western: So you have not lobbied the Canadian government directly?
Ren: There's no need.
03 Dan Strumpf: Just on the subject of the US criminal case, if I may. Mr. Ren, as you are aware, the recent indictment by the US was extended to include a number of new charges against Huawei, including racketeering charges. These are very serious charges. A racketeering charge is accusing Huawei of basically being a criminal enterprise. I was just wondering if you want to respond directly to those charges that the US has made.
Ren: We certainly will defend ourselves against these charges in the courts. It's not the US Department of Justice that has the final say.
Dan Strumpf: I want to ask you about your strategy that you have taken with regards to Huawei in the last year. Last year, you met with us – which we're grateful for – and you have met with a number of other newspapers and television stations. Of course, you have filed a number of lawsuits against the US and just took a much more aggressive approach to Washington, much more so than in the past. I was wondering if you think that approach was effective, given that it seems as though the US remains as aggressive as ever against Huawei. One of your lawsuits was thrown out, and there was a new indictment filed. So, do you think your strategy last year was effective?
Ren: As I said, it's not the US government that has the final say. In the end, we still need to follow the court rulings. It's up to the judicial system of the US to handle these cases in a fair, just, and open manner.
Neil Western: So, Mr. Ren, you trust the US courts to give you a fair trial. What would be your strategy in defending against these charges?
Ren: We are still communicating with the US courts through our lawyers in the US.
04 Neil Western: In the last 15 months, Mr. Ren, you have taken a higher profile in terms of the media and the legal strategy against the US and in many countries around the world, arguing very strongly against US efforts to dissuade foreign governments from using Huawei equipment. Do you feel that strategy is working and can you give examples of how it's working if you think it is?
Ren: It must be working. At first, it felt like the sky was covered by dark clouds, and all we heard was what the US was saying. The US is a powerful country and has a powerful government, so people generally trust what they say. As time goes by though, more and more facts are coming to light, and the sky is changing from pitch black to a dark grey, to a more neutral grey, and hopefully soon to a light grey. We want people to know more about Huawei and increase their trust in us. We are still doing business with companies in Western countries, including the US's allies. Because we have been working with these companies for decades, the trust that has been built between us is precious. They won't give up on Huawei just because of a little pressure.
We will release our 2019 audited financial statements in just a few days. Last year, our sales revenue increased by nearly 20%, and we also saw a significant rise in our profits. This shows that customer trust was not affected by US attacks against us.
As for this year, we expect some growth over what we saw last year. We also plan to spend 5.8 billion US dollars more on R&D. In 2019, we spent around 15 billion US dollars on R&D, and this year's spending is expected to exceed 20 billion. We are becoming more capable of overcoming difficulties, and the difficulties and challenges we face will become less and less. So we are confident that we will achieve our sales and profit goals this year.
After the pandemic, people will better understand the value of advanced information technologies for fighting against the pandemic. It's likely that network rollout around the world will speed up. We're actually concerned that we may not be able to produce enough equipment to meet these needs. This proves our efforts over the past 10-plus months were effective.
Neil Western: I'll come to R&D at any second, but I just wanted to follow up. So you're saying that from your experience, the countries you're talking to no longer trust what the Trump administration is saying about Huawei, but they do trust your assurances?
Ren: I don't know why they no longer trust Trump. Isn't Trump very popular among US voters? I think the American people are very smart.
05 Dan Strumpf: I want to follow up on something you just said. You said the difficulties that you will run into this year will become less and less. I'm just wondering why you feel that way. What will become easier for Huawei? And you said that you're still confident in reaching your financial goals this year. Can you share with us what those are?
Ren: First, we have invested very heavily into R&D. Second, we have cut back on some low-performing product lines and moved outstanding engineers to our major product lines. This way, we will come up with even better products and services this year.
Our financial performance ultimately depends on product quality, service quality, and customer trust. All of the employees at Huawei are working hard to achieve our goals, so we believe our goals can be achieved. I would gladly welcome another interview with The Wall Street Journal in January next year. By then, I will be telling you about our survival.
Neil Western: We would happily take that interview, of course. Could you explain the extra 5.8 billion that you're going to spend on R&D? Exactly what products are you going to invest that money into? And what are your most prospective lines of business?
Ren: The areas of investment haven't changed. We will continue investing in the same products as we have in the past, but now with more intensity.
06 Neil Western: Looking back over 2019, what do you view as your biggest success for Huawei? Do you see it as the decision by the UK to allow you in their 5G network? What role, if any, did you play in that decision?
Ren: We were very successful in 2019, and we must first thank Mr. Trump for that. He's such an influential figure in the world, and yet he pays so much attention to Huawei. Many people did not know about Huawei or were skeptical about us before. Even in China, some people didn't have much faith in us and thought we might be tricking them. After Trump hit us with a big stick, people began to think: "There must be something really good about Huawei. We should buy Huawei equipment before it's too late." So Mr. Trump did us a huge favor. We need to thank him for that.
Before the US campaign, the company actually became somewhat complacent. We have nearly 200,000 employees around the world, and it's difficult to have them all work as one. Our Strategy Department came up with a new vision and mission: Bring digital to every person, home and organization for a fully connected, intelligent world. The aim was to align our employees' thinking. But in reality, our employees didn't necessarily buy into such slogans and were not motivated by them. However, when Trump began to attack us, our employees became vigilant. Survival became an issue, and they knew that if they didn't work hard, the company would collapse. Everyone was on their toes. In fact, they are working a little too hard like a runaway train. I always feel the need to step on the brake to prevent the company from breaking into pieces. So, at the lower level our employees are working flat out, but at the top, we keep a cool head. This lays the foundation for our success.
Neil Western: Do you believe that people in other countries, in Europe, Australia, and New Zealand, feel similarly about the Trump campaign and they're now more aware of Huawei and see it as a technology power more than they did before President Trump's campaign?
Ren: I would say there has been some impact on other countries. Countries like Australia, New Zealand, and the US don't trust us, and their carriers may be affected. It is also a game for them. Some of our customers still trust and understand us though, so we remain confident in our steady growth.
07 Dan Strumpf: Mr. Ren, I want to just ask you a very specific question about the lawsuits that you filed in the US last year. I came to the Huawei campus to cover those lawsuits, and I watched and wrote extensively about them. I followed them closely. I'm wondering, was it your decision specifically to file those lawsuits? I'm just wondering, as I'm aware of some disagreement internally within Huawei over the decision, specifically within the US, to file those lawsuits. How do you deal with that sort of disagreement within Huawei over the decisions you make?
Ren: We have been forced to stand up and defend ourselves in the US, rather than picking a fight there. The US is waving a stick at us, and after taking a blow from the left, we can't just wait for the next one to come at us from the right. Therefore, we are simply defending ourselves in court. As to this question, I would suggest you talk to our lawyers, and they will tell you the answer. There is no disagreement within the company, and we are very much aligned on this issue.
The lawsuits have nothing to do with our ordinary employees, whose responsibilities are to harvest more crops and increase soil fertility. Public relations and legal issues should be handled by specialized departments. I don't know exactly what ordinary employees have on their minds, and there is no need for me to know that. They should focus on their own work. We have no disagreement within the company that needs to be coordinated.
If the US government drops their lawsuits against us, then we can drop ours against them. But as we are seeing no sign of the US moving in that direction, we are actively preparing for other sticks the US may wave at us. If we are caught unprepared, the US may begin waving a stick at our head, and we may get wiped out. Therefore, we have to protect ourselves and prepare for defense.
08 Neil Western: Mr. Ren, can I ask about your operating system and the app ecosystem you're building in the absence of Google's Android? Can you say how far you feel you have succeeded in that and the prospects for that business?
Ren: Our HarmonyOS has gone open source, and the HMS will enter the market with our P40 series phones. Though our operating system (OS) lags behind established brands like Apple and Google, it has unique features. That's why we have decided to put the OS on the market.
We were forced to do so because we didn't feel secure using the operating systems of others. If supply was cut off again, what would we do? The previous supply cut forced us to find a way of our own. We must spare no effort to fill our gaps. If we hadn't done this, we would have been unable to keep our foothold in the market.
Neil Western: Have you recently spoken with Google directly?
Ren: I don't know.
Dan Strumpf: Mr. Ren, how are your smartphone sales this year in and outside China?
Ren: Our sales are still growing, but I don't know about the specific numbers. I just know that we sell about 450,000 smartphones in China every day. Our sales in international markets are declining. However, we expect to see new growth in April and sell more than 20 million smartphones every month worldwide. Because of the pandemic, sales of our tablets, laptops, and other devices have also gone up five or six times. Some of those products already have HMS built in.
Dan Strumpf: So to what do you attribute the decline in smartphone sales in foreign markets? How can you reverse that decline?
Ren: We haven't found a way to increase our sales in overseas markets yet. We are still working to address the problem.
09 Dan Strumpf: Mr. Ren, I'd like to just pivot slightly. I have read a lot of essays that you have written over the years at Huawei and you have written a lot about your past and your travels throughout the US. Who do you count as your biggest inspiration among American tech entrepreneurs? I know you have written a lot about IBM, for example, Louis Gerstner, and you traveled and visited a lot of these companies. Who do you see as your inspiration or mentor?
Ren: The whole tech circle in the US is inspiring, especially sleepless Silicon Valley. Their dedication has inspired us. Business leaders like Steven Jobs, Bill Gates, and Louis Gerstner have also motivated us greatly. We don't just learn from big companies like Google, Facebook, and Amazon though. We also look to the spirit of innovation found in American SMEs. All of this together has tremendously inspired us. The soil for innovation in the US is still very fertile. The US will continue to shoulder the heaviest responsibility in the rapidly developing information society. The US has strong capabilities and many renowned universities that provide high-quality education. This lays a solid foundation for the US's revitalization.
The US attaches great importance to education. A young man helped found Harvard University with a small fortune. A US railway tycoon founded Stanford University. It is the open-mindedness of Stanford University that made Silicon Valley a reality. I think we will always learn from the US's dedication and down-to-earth spirit in technological innovation.
10 Neil Western: I know when you started Huawei, you were concerned about how badly China lagged behind the world in innovation. At what level do you put China now in terms of innovation against the US and the world?
Ren: 70 years ago, most Chinese people were illiterate. But today, you seldom find any illiterate people in this country, and education has been very instrumental in this process. That said, China's education system still follows the old model of the industrial age, failing to encourage children to let their creativity blossom. In kindergartens, naughty kids are always scolded, and their mothers always try to make them behave. The sheer number of exams stifles their naivety.
Children are more creative than the rest of us, and their imaginations are limitless. If their growth is narrowly confined, their drive to innovate will be inhibited, even though the route they take gets clearer with time. In China, what defines a good student is how well they do on an exam. The great Chinese mathematician Hua Luogeng probably wouldn't be able to get into university if he were alive today. China's education system should be more like the US's, which advocates diversity, academic freedom, and free thinking. Only a system like that is going to encourage students to explore different directions and make breakthroughs.
In the US, there are different types of schools with different teaching methods. Students in leading universities have heavy workloads. If you can get to bed by 2:00, your homework might be easy. And it's not unusual for them to go to bed at 4:00 or 5:00 in the morning if they have algorithm courses. For students in ordinary universities, a very important part of their education is about legal and regulatory compliance, and on top of that, they need to study courses that are essential to their future livelihood. They learn boating, horseback riding, golfing, and skiing – hobbies that are vital to social engagements with business people or friends. Of course, these students still have to learn basic courses, but not as many as the students in leading universities like the Ivy League schools do.
Students applying to the Ivy League schools are asked if they helped at orphanages or the lonely elderly. Leaders are supposed to serve and give back to society. Leading US universities focus on fostering leaders in politics, business, science, and many other domains. These people assume significant responsibilities, so they must give back to society. The higher a university's rank, the more important it is they don't create selfish individuals. This is how a society can thrive. Generally speaking, the US's education system is more advanced than China's. Why else would so many young Chinese people study in the West?
11 Neil Western: The China-US relationship is a relationship that directly impacts Huawei, so presumably you do keep an eye on the level of tensions between the two countries as you steer your business.
Ren: The road of development is inherently bumpy. We can dream about all land on earth being flat, but it never will be true. An ideal world should be made up of hills, where even if there are barriers, we are still able to climb over. However, the mountain we are currently climbing is very high and imposes great resistance. But it is not as high as the Himalayas, so we are still communicating with the world. We hope these barriers can gradually be removed and the situation can improve, so as to facilitate production and increase wealth worldwide. Only in this way can conflicts be resolved.
12 Neil Western: I just want to ask how you see the next few years of Huawei and yourself, your role at Huawei in the next few years. Obviously a lot of people speculate about succession plans. What are you thinking?
Ren: Compared with 2019 and 2020, Huawei will only see better developments in the next few years. This is because we now know where our pain points are and where we should improve, so we believe we will be healthier over the next few years. Having learned these lessons, Huawei will slowly move upwards, as if it were climbing up a slope. While our company is climbing upwards, I will be on the way down due to my physical condition, and will not be able to continue climbing with the company. We are seeking a balance, and in the end the world will be increasingly close to being flat.
If Huawei is still operating then, you are welcome to visit us again