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we must make survival the most important guideline

Hello.

Let’s start with what the founder of Huawei said in an internal memo: “Huawei must reduce any overly optimistic expectations about the future, until 2023 or even 2025, we must make survival the most important guideline and not only survive, but qualitatively survive.” The note is noteworthy for the fact that not bad analysts work for the founder of Huawei, who understand the state of the world economy and what awaits us in the near future. Let me give you one more quote from Ren Zhengfei: “Everyone will feel the cold.” The focus on profit is becoming the key for Huawei, in the next three years the cash flow is not so important, the company may experience job cuts, abandoning investments, closing areas that have not had time to grow does not rise The note says it bluntly: “Survive and make money where we can. From this point of view, we must adjust the structure of the market and examine what can be done and what must be abandoned.”

The letter produced the effect of an exploding bomb, and in different parts of the world it was experienced very differently. In Europe, they described the Huawei situation as typical of the Chinese economy, which is going through difficult times, while they pretended that what was happening did not concern them. In the US, they celebrated their own sanctions, which “kneeled” Huawei, although nothing like this is even close. The feeling that everyone has used this letter within their own ideas about propaganda, but almost no one has heard of the grave threat that is looming all over the world. Here we can recall deglobalization, recall inflation, which is only beginning to accelerate. Huawei’s situation is not as bad as it may seem from the outside. The company is making a profit, not feeling sentimental about what needs to be cut quickly. Unlike European and American companies, business in China assumes 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 be in a to live new reality, to move in reality – years fed on starvation rations. In an ideal world, all large corporations should have done this, but they do not see the problems or close their eyes so as not to spoil their picture of the future. Browsing the first reports for the third quarter of 2022, I found myself thinking that denial of the deepest global crisis has become the norm, financiers and company executives pretending that everything is fine and there are simply no problems today.

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The description of the crisis in Huawei’s internal letter is not fiction, it was actually a guide to action, some of which started much earlier. The company completely overhauled all product groups, redistributed development budgets, the company really went into survival mode.

In 2019, Huawei switched from experiments to the production of TVs, mostly they were focused on ordinary consumers, and the category of devices was called “smart” screens, in fact, they did not have a TV receiver themselves. Such TVs were produced both under the Honor brand, while owned by Huawei, and later under its own brand. Given the high competition in this product segment, Huawei could not achieve great success, the company’s investment was considered long-term, aimed at creating an ecosystem of products, in which, in addition to smart accessories, smartphones and tablets, there should also be a be big screen. After analyzing the achievements of this direction, it was de facto decided to limit it, there were no official announcements about this, but all TV models disappeared from the road map. 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 did not bring money here and now. Knowing the size of the company, one is surprised at how quickly such a decision was made, how quickly they cut it. Looking back at the past and European or American companies, I can say that it takes them from six months (very fast!) to one and a half to two years to make such decisions, it is very difficult for them to to let go of what appears and extends into the future. There are endless discussions, attempts to change something and revive the project. But nothing happens.

Huawei is not going to abandon smartphones, despite the fact that this division is completely dependent on the supply of American companies, is de facto under external control by American officials. Huawei came under sanctions and agreed to release smartphones to a number of restrictions; today, the company cannot add 5G support to its devices. This seems extremely strange, since Huawei is number one in infrastructure, which is actively developing 5G, but cannot use this technology in its user devices. Huawei is trying to comply with the restrictions imposed by the United States.

The reason for allowing US sanctions lies in a simple calculation, the arithmetic here is banal – there are countries where Huawei operates, and a complete ban will mean that they will have their own market and several other countries, even though it as big and prominent as Russia. As long as business in territories directly or indirectly controlled by the United States (which is most of Europe) accounts for a significant part of sales, the company will not directly violate the sanctions regime. But every month there will be fewer and fewer reasons not to. The explanation is that the market itself is going to shrink, Europe is going through one of the deepest crises it hasn’t even entered yet. The sky is clear, there are leaks in the bottom of the ship, but it continues to sail. It seems that there will be no storm and there is a safe harbor somewhere ahead. The illusion of security creates a deceptive picture of the world.

The only question today is when companies will start grabbing any buyers. European operators are already reducing the purchases of equipment to a minimum and refusing everything possible. Only a minimum of purchases, only the essentials.

The example of Russia clearly shows that people are starting to buy more rationally and pay less and less attention to nameplates and brand names. The rise of Chinese companies is staggering, Haier has become a premium manufacturer (everyone would have laughed at this a few years ago), newcomers like Tecno are selling tons of smartphones, and people love it. It seems that Huawei should have excellent positions here, but due to sanctions this did not happen, the company is gradually gaining 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 affordable segment. Pay attention to the autumn promotional campaigns in Russia, the emphasis in them is on mass models.

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And this is the right change in 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 fades into the background. Remember how Huawei promoted cameras in their devices? Partnership with Leica, which was then discontinued. The same Huawei P50 Pro, which appeared on the market almost a year and a half, carried the Leica name back, now it has been abandoned. Exactly the same model, but without someone else’s brand – the quality of the photos has not changed in any way, but someone will be able to notice the “difference”, people are suggestible creatures.

The rejection of such cooperation is also a sign of the times, you need to save as much as possible, the effectiveness of 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 doesn’t matter.

Whether we like it or not, a new world is opening up for us, in which large companies are switching to energy saving mode, but not everyone is ready for this. Many simply did not realize that the crisis was for a long time. As the founder of Huawei said, we need to tighten our belts and prepare for the fact that in the optimistic scenario things will get better in 2025. But it seems to me that he said this to calm down, not to escalate horror. Things will start to get better a little later and obviously not for everyone.

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