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Message from the Rotating and Acting CEO

Ideals are not enough. We also need new theory. Ideals give us a vision, and theory gives us the means to achieve it. Over the next 10 to 20 years, we must boldly explore new technological concepts, mathematical models, and algorithms, and in doing so provide society with new theoretical approaches in these areas. In the future, networks will be standardized, simplified, and easy to use. We must broaden our horizons, have a global view, and work together to create value. We must build networks on globally unified standards. And we need to make our contribution to the concepts, theory, and architecture of future data transmission.

2015: Focusing on pipe produced remarkable results

In 2015, Huawei's revenue reached CNY395 billion (US$60.8 billion based on the year-end exchange rate), an increase of 37% year-on-year. Our carrier, enterprise, and consumer businesses all met the sustainable growth targets set by our Board of Directors at the beginning of 2015. While creating value for our customers, we have also increased the value of our company. And since the adoption of our pipe strategy, this year in particular has produced remarkable results.

In our carrier business, our 4G equipment was widely deployed around the world and is now being used in the capital cities of over 140 countries. We recently launched our 4.5G solution to meet consumer demand for a better experience while protecting carrier investment in 4G. We have built over 280 commercial networks

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with our 400G core routers. Having implemented our Product + Service strategy, we now support the operations of over 1,500 networks globally, serving more than one-third of the world's population in over 170 countries and regions. More and more carriers now recognize Huawei as a trusted strategic partner.

In our enterprise business, we applied our guiding principle of Business-Driven ICT Infrastructure (BDII) to lead the transformation of enterprise IT towards cloud architecture, and the transformation of enterprise networks towards SDN. We remain open to being integrated, and continue innovating jointly with our customers and partners. Globally, we are setting the pace for IT systems based on cloud architecture. Many Fortune Global 500 companies, such as the Industrial and Commercial Bank of China, the China Construction Bank, Deutsche Bahn, Mercedes-Benz, and Volkswagen, have selected Huawei as their partners. We have participated in the construction of over 660 data centers, including 255 cloud data centers. In the future, we will continue to work with our partners to create a sustainable ecosystem for the cloud computing industry.

In our consumer business, annual revenue grew by over 70%, securing a position for Huawei among the top three global device companies in terms of market share. This revenue growth is attributable to the robust growth of our mid-range and high-end products, our rapid development in high-end overseas markets, and the great strides we have made with our Honor business model. Following the success of our premium Mate 7 and P7 smartphones, the P8 and Mate 8 further solidified our position in the mid-range and high-end consumer markets. Owing to its approachability and vitality, our Honor brand doubled its revenue in 2015, connecting more consumers than ever before. We have made remarkable achievements in developing our overseas channel, retail, and service capabilities. Our smart watches and fitness bands have hit the fashion world like a storm. In the Internet of Vehicles (IoV), we have partnered with leading global automotive brands. We have made rapid progress in software UX and cloud services, and have effectively satisfied user experience needs across all usage scenarios.

Equipping ourselves with ideals and theory to embrace new opportunities

Information has always been an important driving factor in the progress of human civilization. From letters, images, and voice, to today's HD video, we generate and consume information at all times. Our pursuit of high-quality information knows no bounds. Today, 4K video is no longer the talk of the town, and Virtual Reality (VR) has taken its place as the hot new trend. There is one thing that we need to understand, however: VR aims to simulate the sensory system of the human brain to deliver a near-perfect experience. This requires the ability to process about 5.2 gigabytes of data every second, which is 200 times the 25 Mbit/s standard defined by the US Federal Communications Commission (FCC) for future broadband networks.

We no longer have to take out a second mortgage to pay off a night's worth of 4G download fees. But we need to consider the possibility that a 360-degree VR movie might just stream enough data to fill the Pacific Ocean. This will present great challenges to data pipes in terms of capacity, transmission capabilities, and user experience. But at the same time, it will create tremendous opportunities for everyone in our industry. In fact, over 70% of network traffic today is video traffic. In the future, more manufacturing, security surveillance, healthcare, and entertainment applications will become part of the VR/Augmented Reality (AR) experience. In the wheat and the chessboard problem that's often used to illustrate the shocking and astronomical extent of exponential growth, this is only the beginning of massive data traffic, not unlike the first grain of wheat placed on the first square of the chessboard1 . Data traffic will become so massive, and the scope of connections so broad, that existing data pipes will have trouble transmitting all that information. Overcoming this challenge is the mission that we've undertaken, and the ideal that we pursue.

However, ideals are not enough. We also need new theory. Ideals give us a vision, and theory gives us the means to achieve it. Over the next 10 to 20 years, we must boldly explore new technological concepts, mathematical models, and algorithms, and in doing so provide society with new theoretical approaches in these areas. In the future, networks will be standardized, simplified, and easy to use. We must broaden our horizons, have a global view, and work together to create value. We must build networks on globally unified standards. And we need to make our contribution to the concepts, theory, and architecture of future data transmission.

A Better Connected World will be a wellspring of tremendous opportunities. These will include the 100-billion-dollar video industry, the one-trillion-dollar market for cloud transformation in enterprise IT, and the IoT industry whose user base is expected to grow by a factor of 10. However, this will not all come at once. We must not overlook the opportunities that lie before us while waiting for the future to arrive. Instead, we should work together to accelerate the transformation process.

Enhancing connectivity to stimulate innovation: In 2025, there will be 100 billion connections around the world. Of these, connections between 7 billion people will perhaps account for only about 10% of the total; the majority of connections will be between people and things, and also between things themselves. Currently, 99% of devices with sensors are not connected to the Internet. Therefore, our top priority will be to enhance connectivity, and Narrowband Internet of Things (NB-IoT) is the core technology that will support these massive numbers of connections between things. With low power consumption, wide coverage, strong signals, and the ability to support high-density connectivity in specific areas, NB-IoT will make static objects smart and interactive, and allow numerous things to "speak". This will provide a huge boost to industry efficiency.

Enabling digital transformation: According to a UN report, as of 2010, the ICT industry had long been driven by supply. The technology available determined the services that were offered. Today, things have changed, and this supply-driven model is being replaced by a demand-driven one. Verticals of all types are coming up with more requirements for our networks because ICT has become a new tool for them to increase their competitiveness. The ICT industry should seize this opportunity, better understand the needs of verticals, and help them go digital. Our Safe City project in Kenya is a case in point. From 2014 to 2015, this project helped decrease the crime rate by 46% in the areas within the project's scope. Full connectivity will bring about a better digital life, and will create huge business opportunities for all industries.

Redefining network capabilities to create competitive symbiosis in the industry ecosystem: At the heart of all connections, carriers need to establish software-defined architecture, achieve agile operations, increase their own operational efficiency, and explore ways to monetize massive amounts of data. They also need to choose strategic partners that are capable of integration. In the meantime, by developing their own integration capabilities, carriers can help cultivate a more open and innovative ecosystem. Only by exposing network capabilities will greater opportunities emerge.

2016: Maintaining our strategic focus will lead to breakthroughs in technology

Looking ahead, we must keep a clear head to meet new challenges and seize new opportunities. We must focus on our core business and not lose sight of our mission to build a Better Connected World. We must not waste our strategically competitive strengths on non-strategic opportunities. We must stay customer-centric, and continue to create value for our customers.

Focusing on pipe to promote digital transformation: Carriers are currently in a critical period of new service development and business transformation. New services such as video, the cloud, and IoT have entered the fast lane, imposing completely new requirements on networks and operations. Software-defined networking, cloud migration, and agile operations are driving this new round of network transformation. With leading solutions built on agile and open architecture, Huawei is embracing the future, helping our customers achieve business success in this critical period of development. Following the Industrial Revolution, electrical power, and automation, the next revolution involves going digital and smart. In order to more effectively enable enterprises throughout their digital transformation process, Huawei focuses on providing leading ICT infrastructure solutions, adheres to the strategy of Being Integrated, and strives for in-depth development.

Providing high-quality devices and services to build a premium brand and lead the global consumer market: Consumer electronics are constantly changing, but users are unchanging in their pursuit of high-quality products and services. Today, we are shifting away from a shortage economy, and are entering a surplus economy. In this new era, quality is king. High standards lead to high quality, and high quality leads to a larger market share. In addition to high-quality devices, we must also increase our investment in services. Our ultimate purpose is to establish an effective service system and develop highly efficient service teams at different levels of the organization to support rapid market development.

Focusing on results in uncertain territory, and efficiency when dealing with certainties: In this age of rapid change, moving in the right direction is critical. As we stand at the forefront of cutting edge research, we must invest heavily in uncertain territory, and do so at multiple layers and along multiple paths of discovery. We must tolerate mistakes, and seek out new breakthroughs. What we call black swan events —or unanticipated, impactful events—will inevitably occur. Nevertheless, we must do our best to contain these events, allowing these so-called black swans to swim around in a pond of our own making. Where certainties exist in production, development, and engineering installation activities, we must plan effectively and focus on efficiency. We must avoid loose and chaotic management, and will not allow for careless or reckless mistakes.

Breaking away from traditional models of talent deployment: Wherever there is work, there will always be the chance for rising stars to shine. We must not allow ourselves to be limited by inflexible habits or traditions when we deploy talent. We should be open-minded to attract all sorts of talent from different walks of life—talent that will help us succeed and will share in our success. We will work to develop policies that incentivize all high-performing employees. In doing so, we will create synergy within the organization and focus all our might on improving quality, increasing efficiency, and delivering better financial results.

Enlarging our network and expanding the market: As technology and business models continue to evolve on a daily basis, a single enterprise will find it difficult to succeed in a bubble. Competitive cooperation across the ecosystem will be a major industry trend. While adhering to our principles of openness, collaboration, and shared success, we will focus on ICT infrastructure and work closely with different industries, developers, academia, and industry standards organizations to stimulate innovation in business and technology, and foster a healthy industry ecosystem that supports fair competition, collaboration, and shared success.

For our partners, we are in the process of establishing open labs to support joint innovation and reduce time-to-market for new services. For developers, we have built an open, enabling Ecosystem Software Development Kit (eSDK) platform to provide flexible and easy-to-use tools, along with agile support services. For those in the midst of digital transformation, we are working with leading partners in professional services and application development domains to build an ecosystem that supports verticals like transportation, energy, government, and finance. We are also engaging in joint innovation with our partners across critical fields of industry development such as 5G, NFV/SDN, cloud services, and digital operations transformation.

We're working together to make the world work better. Openness, collaboration, and shared success will smooth the way for the expansive growth of our industry. Here I would like to thank all of our customers and partners for your ongoing trust and support over the years. Let's continue to join forces in building a Better Connected World.

Guo Ping

Rotating and Acting CEO

[1] The wheat and chessboard example is used to illustrate exponential growth, in which one grain of wheat is placed on the first square of a chessboard, two on the next, four after that—doubling the number over and over until the last square. At this point, there will be a total of 18,446,744,073,709,551,615 grains of wheat on the chessboard—an astounding result!

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