Hello.
Let’s start from what was stated in an internal note by the founder of Huawei: “Huawei must reduce any excessively optimistic expectations about 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 noteworthy for the fact that pretty good 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 another quote from Ren Zhengfei: “Everyone will feel the cold.” Attention to profit is becoming fundamental for Huawei, in the next three years the cash flow is not so important, the company could suffer job cuts, abandonment of investments, closure of areas that have not had time to take off . The note says it in no uncertain terms: “Survive and earn 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 a bomb exploding 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 difficult times, pretending that what is happening does not concern them. In the United States, they celebrated their own sanctions, which have “kneeled” Huawei, although nothing like it is even close. The feeling that everyone has used this letter within their own ideas on propaganda, but hardly anyone has heard of the grave threat looming over the whole world. Here we can remember deglobalization, remember inflation, which is just starting 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 about what needs to be cut to the point. Unlike European and American companies, business in China takes the best of all worlds, now Huawei is not only in good shape, the company is aggressively changing itself, forcing its divisions to learn to live in one. new reality, in fact, to move from well-fed years with hunger rations. In an ideal world, all big companies should have done it, but they don’t see the problems or close their eyes so as not to ruin their image of the future. Leafing through the first reports for Q3 2022, I was surprised to think that denying the deepest global crisis has become the norm, financiers and business executives pretend that everything is in order and that there are simply no problems today.
The description of the crisis in Huawei’s internal letter is not fiction, rather it was a guide to action, some of which started much earlier. The company has completely revised all product groups, redistributed development budgets, the company has really moved into survival mode.
In 2019, Huawei moved from experimenting to producing televisions, mostly focused on ordinary consumers, and the category of devices was called “smart” screens, in fact they didn’t have a TV tuner themselves. Such TVs were produced both under the Honor brand, while it was owned by Huawei, and later under its own brand. 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, are also present should be a large screen. After analyzing the results achieved by this direction, it was in fact decided to reduce it, there have been no official announcements about it, but all the TV models have disappeared from the roadmap. The people responsible for their development in China have already been transferred to other projects. In fact, we are talking about the fact that in a short time Huawei abandoned the product category, which here and now did not bring money. Knowing the size of the company, one is amazed by the speed with which such a decision was made, by the speed with which they cut it. Looking at the past and at European or American companies, I can say that it takes anywhere from six months (very fast!) To a year and a half or two to make such decisions, it is very difficult for them to abandon projects that have appeared and are extending. in the future. There are endless discussions, attempts to change something and relaunch the project. But nothing happens.
Huawei will not abandon smartphones, although this division is completely dependent on the supply of American companies, in fact it is under the external control of US officials. Huawei has been sanctioned and, in order to release smartphones, has accepted a series of restrictions; today the company cannot add 5G support to its devices. It seems extremely strange, since Huawei is number one in infrastructure, actively developing 5G, but it cannot use this technology in its user devices. The restrictions imposed by the United States, Huawei is trying to comply with.
The reason for indulging in US sanctions lies in a simple calculation, the arithmetic here is trivial: there are countries where Huawei operates and a total ban will mean they will have their own market and many other countries, albeit as large and important as Russia. . As long as business in territories controlled directly or indirectly by the United States (which is most of Europe) accounts for a significant share of sales, the company will not directly violate the sanction regime. But every month there will be fewer and fewer reasons not to. The explanation is that the market itself will contract, Europe is going through one of the deepest crises in which it has not even entered. The sky is clear, there are leaks on the bottom of the ship, but it continues to sail. There seems to be no storm and there is a safe haven somewhere up ahead. The illusion of security creates a deceptive picture of the world.
The only question today is at what point will companies start grabbing any buyer. European operators are already minimizing equipment purchases, rejecting whatever 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 brands. The rise of Chinese companies is mind blowing, Haier has become a premium manufacturer (everyone would have laughed at it a couple of years ago), newcomers like Tecno sell tons of smartphones and people love them. It seems that Huawei should have very good positions here, but due to the sanctions this has not happened, the company is gradually building 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 accessible segment. Pay attention to the autumn promotional campaigns in Russia, the emphasis in them is on mass models.
And this is the right change of 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 it takes a back seat. Remember how Huawei promoted cameras in their devices? Partnership with Leica, which was later terminated. The same Huawei P50 Pro, which has appeared on the market for almost a year and a half, has brought back the Leica name, now abandoned. Exactly the same model, but without someone else’s branding – the image quality hasn’t changed in any way, but someone will be able to spot the “difference”, people are suggestible creatures.
The refusal of such cooperation is also a sign of the times, it is necessary to save as much as possible, the efficiency of the products comes to the fore. And if a smartphone with an additional brand on the case costs 10-15 dollars more, then to hell with this brand – it plays no role.
Like it or not, a new world is opening up for us, where large companies are transitioning to energy saving mode, but not all of them are ready for it. Many simply did not realize that the crisis had been going on for a long time. As the Huawei founder said, we need to tighten our belts and prepare for the fact that, in an optimistic scenario, things will improve in 2025. But it seems to me that he said it to calm down, so as not to increase the horror. Things will start to improve a little later and obviously not for everyone.
