Q&A is usually one of the most thrilling parts of each year's Huawei Global Analyst Summit. Three of Huawei's spokespersons participated in the session this year: Ken Hu, Deputy Chairman of the Board; William Xu, Director of the Board and President of the Institute of Strategic Research; and David Wang, Executive Director of the Board, Chairman of Investment Review Board, and President of ICT Strategy & Marketing. The following is the full transcript:
Q1 Mobile World Live: Huawei has secured 45 5G contracts globally. You just posted your annual report. From the report, we can see the group slipped just over 1% after a pretty flat year in 2017, so it would be good to have some insight into your carrier and infrastructure business. Thanks.
Ken Hu: In 2019, there will be a new driving force boosting investment in the carrier market, 5G network deployment. The 5G industry is developing faster than we expected. Over the past three years, we have noticed several changes in how carriers view 5G.
Three years ago, carriers did not have a very clear picture of how 5G would be deployed or how they could use 5G to generate business value. Everyone shared the same general vision that 5G would bring about many industry applications, but that vision wasn't very clear. Two years passed, but it still looked like they couldn't find a business case for 5G in autonomous driving cars, intelligent manufacturing, or any other industries. During this period, they felt lost when it came to 5G.
But, starting in the second half of last year, we have seen an obvious change in the industry's understanding of 5G: They were clearer and more practical about 5G. They realized they don't need to rack their brains to discover novel business cases across different industries. Even enhanced mobile broadband (eMBB) services based on the recently completed Release-15 5G standard can help service providers find very appealing business cases targeting individuals and industries.
Like I just shared in my keynote speech, we have seen how 5G is changing the media industry. This is a real-world application of 5G. So from a business value perspective, we see strong cases for 5G. This provides strong support for the further growth of 5G.
From an industry maturity perspective, 5G has developed rapidly when it comes to chips, networks, and devices. In the second half of this year, when more 5G-ready phones go to market, the industry will be more confident in 5G's business value.
By then, we believe investment in 5G will no longer be an area for blind development. Investment will instead revolve around business value, making it more reliable and rational. For the industry, 5G will be a new driving force for investment. And for our carrier business, we expect 5G to further drive growth in this sector.
In 2019, we expect to hit double-digit growth for our carrier business. Q2: My name is Peter Richardson, from Counterpoint Research. So the question is for Mr. Ken Hu. I thought your presentation was very interesting and you made some comments about cyber security, and I think perhaps an admission that you have more work to do there. So the question is, what do you see is the biggest business risk for Huawei? Is it the politically motivated sanctions that might potentially emerge? Or is it the lack of cyber security that you are now investing in and trying to correct? Thank you.
Ken Hu: When running our business, we always identify risks, both internally and externally. When managing these risks, we don't just focus on one specific area; instead, we take a systematic approach.
Huawei is only 30 years old, but we feel like we are surfing when running this business. There can be ups and downs at any time. Despite this, we need to keep an eye on the long term and effectively manage these ups and downs.
When it comes to challenges, we have already developed a long-term strategy for Huawei's next stage of research and innovation. This is an important move that we have made to address our future strategic challenges. In the face of the huge opportunities that come with the future intelligent world, we must ask: How can we build stronger leadership in innovation? Our answer is we want to go one step further: moving from innovation in products and technologies to innovation in theories.
When it comes to external challenges, geopolitical conflicts and changes in international relations are, of course, the factors that we must consider.
We believe that cyber security is a technical issue. Our position on cyber security is very clear: We need a more systematic and generally accepted framework to identify cyber security risks and manage these risks through collaboration. At Huawei, we are well prepared to actively engage in global collaboration on cyber security while continuing with our own work. We are ready to drive this process.
When we discuss cyber security, the technical should remain technical, and the political should remain political. If we look at cyber security as a technical issue, it will represent both a challenge and an opportunity. We all hope that as technologies become more widely adopted, networks will become more secure and privacy can be better protected.
However, if the cyber security issue is politicized, it will become a huge challenge. And this will not be a challenge for Huawei alone; it will be a challenge for the entire tech industry, or even global trade relations.
When you politicize the cyber security issue, you are discussing it based on your feelings, not on facts. This will cause fragmented technological development. Fragmentation will hinder the development of the tech industry, because it will slow down and raise the cost of technological innovation, and society as a whole will eventually have to pay for this. If such fragmentation occurs, it will not just be a challenge for Huawei; it will also be a huge challenge for the entire industry and society at large.
Q3: The Indian government has so far not invited Huawei to participate in its 5G trials, which will set a benchmark for every operator in India. My question is, are you engaging with the Indian government regarding 5G deployment? And the second question is, have you had got any deals from Indian private operators so far on 5G?
David Wang: 5G trials in India are led by both the government and operators. As far as I know, we were invited by the Indian government to participate in 5G trials last year, and we also participated in 5G testing and planning with almost all major operators in India. In this sense, we are deeply engaged in India's 5G testing and planning.
Huawei attaches great importance to the Indian market. We have been a major vendor for India's mobile telecom market over the past 10 years or so. I think India is in the same position as in China and many other Asian countries. The country has a large population, but insufficient spectrum and site resources.
To address these challenges, Huawei has developed a range of innovative solutions to improve spectrum efficiency, network efficiency, and rollout speed.
Huawei will use these innovative solutions to help our customers build leading global 5G networks and benefit India as a whole.
Ken Hu: I fully agree that Huawei attaches great importance to the Indian market, as the market has a large, and in particular, young population. This would make it an attractive market for any digital business.
As a 5G technology provider, Huawei would like to make the Indian market more attractive in terms of 5G. Therefore, we hope to see the following changes in the Indian market.
First is in the supply of spectrum resources. In the 4G era, operator spectrum resources were insufficient, and spectrum distribution was fragmented. If that old approach towards spectrum supply is not changed for 5G, we are worried 5G won't have a very strong impact in India.
The second change we would like to see in the Indian market is a healthier operator business model, because the current competition between Indian operators is a bit vicious.
Personally, I think long after 5G rollout, eMBB will remain the major use case. If operators are already struggling to earn a profit from eMBB in the 4G era, I don't know how they will build an effective business model for 5G.
Q4: In the past, I've heard Huawei repeatedly say that you have no intention of becoming an independent chip vendor. But just this week, Mr. Ren said in an interview that you are open to selling your 5G chipsets to Apple. Is this a fundamental shift in your stance in that regard or is it just a publicity stunt? And if you are serious about it, why the change of heart at this point in time? And have you started talking to anyone at Apple about this? Also, how do you expect to make this happen in the current political climate? Thanks.
Ken Hu: There has been no change in our chip strategy. Our chip strategy has always been to have the independent and manageable resources on the Huawei side, and we stick to open cooperation in terms of chips. It is already very challenging for us to manage such a variety of businesses, so we have no intention or plan of making chips an independent business at this moment.
We have not had any communication with Apple in regard to this. We believe Apple is a great company that has made great contributions to the development of the mobile industry. If it weren't for the efforts of Apple, we wouldn't have embraced the mobile Internet era this early.
5G is in an exciting era, ready to come into full bloom. We believe that all great companies like Apple should play a pivotal role in this era.
From an industry development perspective, when such a great company participates in competition, it will also drive the strengths and capabilities of all other players in the race.
So in this sense, we strongly look forward to Apple's participation in the race to drive the development of 5G smartphones.
Q5: A couple of quick questions. So you mentioned previously that Huawei is looking for double digit growth in its carrier business this year. There are only a few countries deploying 5G around the world this year and early next year. The US, Japan, and Australia have mentioned that they are not using Huawei equipment, so most of your growth should be coming from China or Europe. Can you comment on where this growth is actually coming from for your carrier business in 2019? The second question is in the 4G era, Huawei's main positioning was to provide the best products and the most affordable prices. In the 5G era, Huawei has already become a leader, so do you have any changes in terms of the pricing strategy?
David Wang: The pace of 5G development differs by region and country. Some countries have started large-scale deployment, while others are still at the trial stage.
If we look at the evolution from 2G to 3G, and then to 4G over the past 30 years, we can clearly see a pattern in the development of the mobile communications industry. One generation of mobile technology emerges every 10 years. Now we are entering the fourth decade.
In each previous generation of mobile technology, some countries were part of the first wave to adopt the tech, others were part of the second wave, and the rest were in the third wave. That being said, the development of the mobile industry is a continuous process. Though some countries are still trialing in 5G and have not yet started commercial deployment, carriers need to expand and adjust their 4G networks to set the stage for 5G rollout.
It will also take an incredibly long time for 5G voice over NR (VoNR) to take shape, so early 5G networks will not provide voice services. This means we will still need 4G to provide quality voice services, meaning we need to further improve 4G coverage. Many countries will not deploy 5G on a large scale in 2019, but 4G coverage improvement and VoLTE deployment will still be a priority for them this year.
In addition, 5G delivers 10 times, or even 100 times, the bandwidth that 4G delivers, which means capacity demands for mobile backhaul and transport networks will be much higher. As a result, carriers need to deploy backhaul and transport networks before they roll out 5G and Huawei is a global leader in this area. So in 2019, we have already seen clear signs of growth in our carrier business compared with 2018 in China, Europe, the Middle East, and Latin America.
You also mentioned that we were banned outright in some countries. I'd say some of the media reports on this are somewhat incorrect. In fact, we chose not to enter the US market. In Australia, we are still providing 4G network expansion.
In other countries, more and more governments and carriers have realized that Huawei is the most reliable 5G partner. So the geographical situation we are in has not changed much or worsened compared with last year.
Regarding your question about the pricing strategy of our 5G products, my answer is this: Huawei's strategy has always been to provide the most innovative products we can to help our customers achieve business success. We believe as we introduce a new generation of technology, we must also benefit carrier customers and improve end user experiences in a real sense while significantly improving cost-effectiveness.
Everyone knows 4G was about ten times more cost effective than 3G while providing the same amount of mobile data traffic. Our goal is to make 5G services 10 times more cost effective than 4G by working with the whole industry. To make this happen, we will need governments to allocate 100 MHz of spectrum and formulate supportive laws and regulations for network construction. High-speed, convenient networks benefit society as a whole. We need to work together as an industry to make 5G networks 10 times more cost effective than 4G networks. This will allow the mobile communications industry to truly thrive.
Q6: Hello, I am from Peoples' Daily. Mr. Xu, you mentioned that Huawei is going from Innovation 1.0 to Innovation 2.0, and that Huawei will shift its focus to basic research, rather than just on product research and development. I think that is exciting news for the industry. I have three questions for you.
The first is that we all know that basic research requires huge investment and takes a long time before yielding results. It also involves huge risks. So I wonder how much Huawei plans to invest in basic research. For example, do you plan to start a fund for investing in basic research? Could you please give us an estimate of your investment in basic research over the next five to ten years? What proportion of your investment will go to basic research and product R&D?
My second question is: Will this initiative mainly be led by your own Institute of Strategic Research or through collaboration with universities or research institutes? If you go for collaboration, what is your scheme for intellectual property rights?
My third question is: You mentioned open collaboration and inclusive development. I personally agree with these ideas, but some people don't. I also heard the news that MIT decided to terminate its partnerships with some companies. How do you respond to this?
William Xu: Thank you for your question. The title of my keynote speech is "From innovation to invention: With the world, for the world". As you can guess from this title, we are now seeing bottlenecks in theoretical innovation and basic research. In order to ensure sustainable and healthy development in Huawei, and the industry as a whole, we must invest more in theoretical research and basic invention.
Future-proof research involves great uncertainties, and universities are taking the lead in exploring these uncertainties. So we will prioritize collaboration with universities. Our annual spending on university collaboration will exceed 300 million US dollars. This investment will be made in the following areas.
First, we provide gift money and funding money to support scientists' exploration into the future and basic research. We have noticed that some scientists have short-term intentions. For example, they are eager to publish papers on famed journals, and unlike their predecessors, they do not have the patience to conduct research that may take more than ten years.
So by sponsoring the research efforts of scientists, we hope they can focus their efforts on contributing to humanity's progress, rather than on short-term goals like publishing papers on journals. We also provide funds to help scientists recruit Master students and PhD students to work on long-term research together.
Second, we establish joint innovation centers and labs with universities to focus on basic research and invention.
Third, we collaborate with universities as it leads to shared success. We can have a look at the cycle of innovation. Universities mainly focus on theoretical breakthroughs, including the invention of some key basic technologies, and businesses also participate in this process to help commercialize or transform inventions into products. Businesses like Huawei develop related products and provide them to operators, who will then provide services to consumers. Businesses can gain profits from this process, and then invest their profits back in universities to further support their basic research and theoretical innovation. This will create a virtuous cycle.
Many professors who have worked with Huawei have said that businesses can create immense value for universities, because businesses share their challenges and insights into future trends with them.
Another point I would like to make is that patents generated by universities and professors will be valuable only when they are commercialized or transformed into products that can create value for society. Otherwise, patents will only ever be pieces of paper.
Businesses and universities should adopt an open approach when collaborating with each other. Open collaboration means sharing capabilities worldwide to drive inclusive development. In other words, such collaboration needs to serve all companies, the industry, and humanity as a whole. And I hope technological discussions can revolve around technology.
Q7: In order to make zero search and super sight work across several apps, devices, services, and platforms, you have to take into account that many of them are not based on open standards. How do you plan to agree with those companies, the owners of those services and platforms, on having them share their technology and know-how, and if they do not, how will you make it happen anyway?
Ken Hu: This is an excellent question. For the zero search and super sight I just mentioned, some technologies are standardized, while others are not. From a long-term perspective, non-standardization will only be a part of our transition towards standardization.
Multiple factors will affect the standardization process. These include the role played by the market, the progress of innovation, and the willingness of technology owners to make their technology available to others.
Huawei's strategy is to work in the following two areas:
First, we will actively support global standards that have already been established, such as 5G standards, and proactively make contributions. Second, for business scenarios where standards haven't yet been established, like IoT, Huawei will actively innovate and drive standardization.
Take HiLink as an example. We will fully leverage the market and the power of technology to evolve this platform into an open and widely accepted public standard. HiLink is a significant effort that we have made to drive IoT standardization in the consumer sector. So far, we have seen excellent progress.
David Wang: Over the past several years, many new technologies have emerged, and innovation has been faster than ever. Traditional innovation systems that are based on standards are finding it difficult to adapt to new technologies.
This year, we will invest heavily in growing the ecosystem. As I mentioned in my keynote, we pursue not just the business success of Huawei. We also pursue shared success across the entire industry. To achieve this, we must have an open ecosystem in which more partners can participate. Together, we can achieve greater success for the industry.
Ken Hu just mentioned the HiLink platform. This is an ecosystem platform that Huawei's Consumer BG has developed, which targets households. We have several similar platforms. For example, we have the ARM64 ecosystem and the ecosystem around our Ascend series of AI chips. Our goal is to accelerate the commercial deployment of ARM64 and AI in the industry and address two major challenges the industry faces in computing power: scarcity and high costs.
While investing heavily in building ecosystems, Huawei's cloud strategy aims to foster a fertile business environment that enables our industry partners to rapidly develop solutions that target real-world application scenarios on open platforms and quickly monetize their innovation. In this way, industries will be able to go digital faster.