Ren confirms Huawei restructure on the cards with memo

An internal memo from Huawei founder Ren Zhengfei has been doing the rounds, suggesting a major business restructure to ensure the business can survive US aggression.

Although it remains the heavyweight champion in the network infrastructure segment, the last two years have been marred with a White House propaganda mission to limit the prospects of the business. Huawei has remained strong in the face of adversity to date, though in a memo to staff, Ren has admitted the damage has been dealt.

Over the next three to five years, Huawei will undergo a major business restructure to ensure it is capable of withstanding continued aggression from the US. This is a preparatory strategy from the Chinese vendor and we suspect the depth or breadth of the strategy will depend on the winner of the 2020 Presidential Election.

Of course, the inadequacies of the business have been highlighted to date. Although Huawei is not as dependent on the US as its domestic rival ZTE, there are areas where the US ban has hurt the giant. Should Trump win re-election, it would be a fair assumption the anti-Huawei campaign will continue though it might not be as aggressive under a Democrat administration.

Irrelevant to the outcome of the election, a restructure is probably needed and has been highlighted here by Ren.

“We have to complete an overhaul in harsh and difficult conditions, creating an invincible iron army that can help us achieve victory,” Ren said in a memo seen by Bloomberg, which was confirmed by a Huawei executive.

“We absolutely have to complete this re-organisation within three to five years.”

Although the existence of Huawei was not in question, the Chinese domestic market is large enough to support it alone, the international success of the business has been called into question as a result of the on-going US/China conflict.

Huawei has largely been a proxy of the trade war, perhaps due to the success of the business on the world stage. ZTE is a more obvious target for US aggression, it is partly state-owned after all, however it does not have the presence of Huawei. Few companies have leapt out from behind the Great Firewall of China and dominated a segment in the same way Huawei has.

This is the precarious position Huawei currently sits in. Valuable relationships with international telcos are under threat thanks to the US bullying allies into line, while its supply chain is looking dented. Some suppliers can be replaced by alternatives, though there are a couple of areas where it is incredibly difficult. OS Android for its smartphones is top of the list due to fact there are no alternatives which can match.

“Two bullets fired at our consumer business group unfortunately hit the oil tanks,” Ren said in the memo.

This might be a reference to the significant damage which has been done to the consumer business. Although it is still in a position of strength, the reference might suggest it is living on borrowed time.

In the first half results, Huawei said its consumer business has grown by 24% year-on-year, though this now looks to be driven by the domestic market. Research from Canalys suggests smartphone shipments in China have increased by 31% year-on-year for the second quarter, though a decline of 16% for the same period was estimated in Europe. Patriotism is fuelling growth in the domestic market, though Huawei’s international reputation has been dented.

What Huawei looks like in a couple of years in a very interesting game to play. However, the turbulent storms of 2018/19 might lead to a stronger company in the long-run.

If US aggression continues its aggressive campaign, Huawei will be forced to completely restructure its supply chain. If it can maintain international relationships and customers throughout this period of restructure, it will have removed reliance on the US and a major weapon of the White House when attempting to bully its way through international relations.