How does Huawei stay strong? 【DannyData 09】


When talking about Huawei, what aspects are of your main concern?

Previously, I have done a Danny Q&A survey among my subscribers and received thousands of feedbacks within 12 hours. The following three are the most common issues that people care about. Which one is of your concern?

I will demonstrate the survey results at the end of this video, and the top one question with three kinds of answers: 
1. The official response from Huawei; 2. The best answer is given by one of you guys; 3. My own take on the question. 
You guys can evaluate which one is the most satisfying.
Huawei's development has been accompanied with hardship since its founding. But Huawei considers itself as a phoenix.

There is no way that we are beaten to death.Ren Zhengfei

As early as 2003, Huawei was not beaten down by Cisco's lawsuit against it over intellectual property. At the early stage of mobile Internet era, the top four companies in mobile industry were ZTE, Huawei, Coolpad and Lenovo. But the latest top 4 companies are Huawei, Xiaomi, OPPO and VIVO. Huawei is the only company survived and even becomes the leader of the industry.

Left: the former top 4; right: the latest top 4

In May 2019, the US Commerce Department designated Huawei to the Entity List, suppressing a Chinese company by national power. Huawei has experienced unprecedented difficulty on its way of development. Ren Zhengfei said:

Our previous thoughts did not predict such seriousness. We made some preparations. Just like our rotten plane, we only protected the heart and the fuel tank, and did not protect other minor components.

It can be reasonably expected that the US is likely to take more severe actions against Huawei. So today I'd like to talk about how does Huawei stay strong despite all its hardship?
 I’m Danny, I talk about tech and cars. In this video, I will dig into Apple’s innovation in recent years. As usual, all information used in my video is authentic and first-hand. You’re welcome to disagree with my arguments, but don't doubt my sources.
01 Research and Development

Let’s talk about research and development first.

1-1 R&D expense
There are four segments of Huawei’s business operation, including telecom carrier business, enterprise business, consumer business and other unallocated business. 

Huawei's income segments
The mobile phone business, attracting most public attention, belongs to the consumer business. As you can see from DannyData, in recent years, the proportion of consumer business revenue to total revenue has been increasing rapidly, and it is almost 50% at present. This demonstrates that Huawei’s recent growth is mainly driven by its consumer business. Liang Hua, the current chairman of Huawei, once said:

In order to follow up with or to lead consumers’ needs, the investment in research and development and new technologies must be persisted.

People who are my "fellow travelers" may be familiar with my previous episodes, Why is Xiaomi hard to enter the high-end market?【DannyData 06】 and Is Apple still innovative?【DannyData 07】, in which I compared the R&D expense of Xiaomi, Apple and Huawei.
My conclusion is that in terms of the R&D expense, Huawei and Apple is at the same level, while Xiaomi is left far behind. However, since Apple’s revenue is much more than Huawei, it can be said that Huawei are more willing to invest in R&D. 

For example, Huawei is proud of investing more than10% of its annual revenue into R&D. As you can read from DannyData, Huawei has disclosed its R&D expense since 2008, and its R&D-to-revenue ratio has exceeded 10% since 2011 and even reached 14% in recent years. 

Huawei R&D-to-revenue ratio

However, Xiaomi’s R&D-to-revenue ratio is about 3.8%:

Xiaomi R&D expense-to-revenue
And that of Apple has just exceeded 6% at the first time in 2019:

Apple R&D expense-to-revenue
Comparing this ratio only, it is true that Huawei are more willing to invest more into R&D than Xiaomi and Apple are. But the R&D-to-revenue ratio of Huawei will pale in comparison with that of Qualcomm, another industry leader, who invests more than 20% of its revenue into R&D. I will talk in detail in Qualcomm episode, anyone interested? 

Qualcomm R&D expense-to-revenue
Huawei put significant efforts into R&D, and this has become a consensus among Chinese tech tycoons. Liu Chuanzhi, CEO of Lenovo, once said, 

In the IT industry of China, Huawei and Lenovo are two totally different companies. Huawei prioritizes technology R&D overmarketing, and its development is like climbing the rocky and steep northern slope of Himalaya. While Lenovo chose to develop technology based on the market needs, just like climbing the gentle southern slope of Himalaya. Though the two companies take different paths, they both reach the mountain top at the end.

Here I would like to say a few more words. I respect Mr. Liu and I agree with most of his statement. But for his conclusion that both Huawei and Lenovo will reach the top, I think it‘s somewhat far-fetched. Comparing to Huawei, Lenovo has been left behind significantly in various fields. In the long-term, tech companies who take the developing path like Lenovo will not be able to compete with companies who take Huawei’s path. Do you agree with me? I will talk more about the developing path in the Lenovo episode.

1-2 Number of patents
Well, capital investment is just one respect of R&D, and the outcome of R&D is the other respect, such as acquiring patents. As early as 2010, Huawei has acquired about 20,000 authorized patents globally. In the end of 2018, this number has reached 87,805, of which 11,152 patents are authorized in the US. Huawei’s core patents encompass its 5Gpatents, which account for 15% of overall 5G patents and rank the first in the world. Huawei started its research and development in 5G when 4G networks was not even popularized in China, and it has been working on 5G for 13 years. I will elaborate the role that 5G plays in the next part about “entry competition”.

At the end of 2018, Huawei has acquired 87,805 authorized patents, of which 11,152 patents are authorized in the US.

1-3 R&D in fundamental science
Abundant investment is not the only reason behind Huawei’s numerous patents, since the more important thing is to invest money into the right basket. Put simply, Huawei don’t just put money into projects that improve the image of the brand, but put it into the R&D of fundamental science as Ren Zhengfei said. 
Ren Zhengfei has stated the importance of fundamental science in many previous interviews.

I can see the working status of our scientists. Every time when I visit any overseas research institutes, every scientist is eager to demonstrate his/her equations.Ren Zhengfei

Also, Huawei has put the R&D in fundamental science to a strategic level in 2019.
In April 2019, Huawei announced the establishment of the Strategic Research Institute, highlighting the importance of R&D in fundamental science. Xu Wenwei, the director of the Strategic Research Institute, said:

Huawei’s past innovation is the 1.0 model, which is mainly the innovation of products, technologies and solutions. With the establishment of the Strategic Research Institute, Huawei is going to the era of innovation 2.0, which is based on the vision-driven theoretical breakthrough and basic technology invention.

Shifting its focus from the application of innovation to R&D in fundamental science, Huawei aims at compensating for the disadvantages of Chinese tech companies. In other words, Huawei will not involve in the business of food delivery service nor ride hailing service, but it will step further in the R&D of core technology like integrated circuit and 5G network. Huawei has been considered as "the pillar of Chinese tech industry", and it is quite reasonable that Huawei gains popularity and favor with many senior Chinese high-net-worth individuals.
02 Entry Competition

Continue to my second point, entry competition.

2-1 IoT access competition
We all know that the entry of mobile internet is still the mobile phone. However, as the era of 5G is coming, the previous large and only entry, the mobile phone, will be split into many small entries. Just like the Meridian Gate used to be the emperor’s entrance to the Forbidden City, and now it is divided into a bunch of tourist security lanes. Huawei aims at competing for every single entry to the Internet.

In 2015, Wang Xing, the CEO of Meituan (a Chinese company offers services similar to Yelp and TripAdvisor and also offers group buying similar to Groupon), and Wang Xiaochuan, the CEO of Sogou (a Chinese technology company that specializes mainly in web search), had a discussion:

Wang Xing: It seems a very broad topic. Mobile phone is still the most important device in people’s daily life, but I don’t think this situation will last long in a large sense.Wang Xiaochuan: Then Google Glass?
Wang Xing: Maybe other wearable devices. Mobile phone has replaced PC as the essential device in people's life. How many years do you think this situation will last?
Wang Xiaochuan: “Around 6 years.”
Wang Xing: Almost. Maybe 5 or 6 years. Well, at most 5 or 6 years.

Exactly five years has passed since 2015, and their judgments can be described in one word: clever.

When it comes to Huawei's competition for the access to Internet, the very Harmony OS of Huawei must be mentioned. In my opinion, whether U.S. sanctions Huawei or not, the benchwarmer Harmony OS will enter the field sooner or later. The U.S. sanction just accelerated this process. 

Why do I say that Harmony OS will become a field player anyway? The answer is quite simple. As I mentioned earlier, in the era of 5G, the Internet entry will transfer from the one-and-only mobile phone to various IoT devices. We all know that Google's Android and Apple's iOS dominate the mobile phone operating system. They, however, are born with a default defect—they are designed for mobile phones whose systems are extremely intricate. In plain words, there are too many lines of codes, which is not suitable for the future IoT gadgets. Just like you wouldn't equip an old-fashioned cannon with a nuclear warhead.
The distributed design of Harmony OS is aimed at smoothing the path for the IoT cross-device connection in the 5G era. Of course, Google will not sit still. Google is aware of the shortcomings of Android in IoT devices connection, so it developed the Fuchsia. I'll talk about this in detail when I get to Google. Oh, I just give myself a third hole to fill.

I have more to say about the IoT. In fact, I noticed much skepticism among the general public about the future of the IoT. They are doubtful, "Do we really need that many devices connected to the Internet? My air purifier, kettle, and rice cooker are not connected to the Internet, but they work still fine.” It’s correct. Many IoT devices today are of false demand, but that’s no reason to underestimate the impact of IoT in the upcoming 5G era. Three points should be emphasized.

First, as ducks know first when the water become swarm in spring. It’s the same with To B business and 5G. 

That is to say, in the 5G era, companies will be benefited by the IoT earlier than ordinary consumers. For instance, by installing sensors on trucks, robots, drones, logistics companies can significantly improve the overall operation efficiency and safety. Or, like I said in my previous video, Pinduoduo will compete fiercely with Meituan in the near future, which means that both companies will put great efforts into enhancing their supply chains. Efficiency is key to gaining a competitive edge, and the IoT is key to improving efficiency.
That’s that for To B business. The second is about consumers’ super devices.

Second,  consumers’ super devices.
The benefit of distributed design is that you get to enjoy the advantages of various devices altogether, just like having a super device. And this device has a large screen of an on-board computer, the flexibility of a drone, the function of an activity tracker, the office capacity of a computer, the computing power and camera of a cellphone, the convenience of smart glasses, etc.
In other words, you can use the best part of any device at any time as you wish. The super device is like a Transformer supported by the 5G network. I recommend this a promo video about future life with 5G to you guys. This is produced by the Ministry of Internal Affairs and Communications of Japan. 

Third, cross-validation between devices, which enlarge the usage scenario with better security. For example, in the driving scene, besides the automatic pilot, the car can also recognize the driver’s physical condition by collecting heartbeat data through the activity tracker. Also, it can be combined with the facial recognition of the on-board computer, and even connected with public facilities such as speedometer, signal light, etc. Cross-validation of multiple devices is safer, and full-automatic driving will come sooner.

Although now technology companies like Apple, Xiaomi and Huawei have their own ecosystem, the synergy of devices is still at a very preliminary stage, limited to personal devices and geographical location.

The most common usage scenario of a product ecosystem is that all devices are connected to the same Wi-Fi signal. In the future, more IoT devices will be able to use beyond the house range and connect with people around or public facilities, forming a larger ecosystem. The key behind is still the 5G. The 5G technology has four features, including high speed, ubiquitous network, low power consumption and low latency. These can be all found in one typical scenario, the automatic pilot, where a millisecond difference can save lives.
Therefore, future-oriented software developers should not consider only the mobile application scenario, but the entire scenario. For example, Huawei displayed the CyberVerse map last year, which was the preparation for future smart devices. You can rest assured that Huawei is bound to introduce smart glasses connected with the CyberVerse.
Noticing that I am talking about smart glasses with AR functions, like Google Glass, not the sunglasses with smart headphones launched by Huawei and the fashion brand Gentle Monster.

That is why I said that, the door of mobile phone entry is closing and the IoT “ticket gates” are opening. The future is infinite.

Internet companies today are jockeying for entries to the next generation of the Internet, and the IoT devices are their first step. As I said before, Xiaomi is an absolute leader in the amount of IoT devices. Xiaomi is desperate to pull consumers into their ecosystem even with unprofitable products.

Xiaomi beat Huawei in the amount of the IoT devices, which is absolutely an advantage. This is because that more devices will collect more data, hence accelerate the iteration of products.

But from a different perspective, Xiaomi does have more IoT devices, but does this mean that Xiaomi will defeat Huawei and win the competition for the next entry of the Internet?

The answer is: No. Your competitors may defeat you in two ways - dimensionality reduction and dimensionality change.

2-2 Dimensionality reduction & dimensionality change

Firstly, dimensionality reduction. For example, Xiaomi leads Huawei in the number of the IoT entries, just like it started ahead of Huawei on the 100-meter track. However, commercial competition has never been so simple as a 100-meter race, since companies do not always follow the rules. When you are industriously training your core strength in order to speed up by one or two seconds, your competitors may have already pasted you using an avant-garde approach - driving an electric vehicle that accelerates from 0 to 60 (mph) in 3seconds. This is what we often call dimensionality reduction attack.

Moreover, sometimes it’s not about who runs faster at all, but about who runs elegantly. This leads to my second point: Dimensionality change attack. Competitors win the competition through brand influence rather than getting great scores.

The brand influence includes the exquisite design, which can be described by an exclamation “Wow! Awesome! This is my moment!” the sense of luxury by co-branding with big names, and even patriotism, etc. To put it simply, the winner is determined not only based on the speed. Just like what is often said by fans: “My idol is poor in acting skills, but do you see how hard-working s/he is?” Instead of pure strength, the winner defeats its competitors by emotional association.

In fact, dimensionality reduction and dimensionality change can be explained by Schopenhauer’s famous saying: Talent hits a target no one else can hit (dimensionality reduction); Genius hits a target no one else can see (dimensionality change).
Compared with Xiaomi, Huawei has advantages in both dimensionality reduction and dimensionality change in the upcoming Internet-entry competition. Lei Jun, the CEO of Xiaomi, must have known this. That’s why Xiaomi keeps expanding the boundary of product category and approaching the high-end market. As I always said, if you only consider mobile phones as a product of supplier integration, you are too young too simple.

03 Talents and Culture

Then continue to the third point: talents and culture.

3-1 Recruit global talents
How does Huawei attract talents? The first thing is to use a reasonable incentive mechanism.

Out of nearly 190,000 Huawei employees, about 100,000 of them hold Huawei’s stock. That is more than half of the total. Meanwhile, Ren Zhengfei himself owns only 1% of Huawei’s shares. Besides, stock-holding employees also have decision-making power. 115 representatives are elected among them, from whom the chairman and the directors are elected.

Moreover, Huawei attaches great importance to R&D talents. It has more than 80,000 R&D personnel from all over the world. And the annual cooperation funding with universities exceeds 300 million U.S. dollars.

The annual cooperation funding with universities exceeds 300 million U.S. dollars.

As the best Chinese private enterprise in globalization practice, Huawei is rather willing to invest in recruiting talents worldwide.

As Ren Zhengfei said: “We gather the best talents all over the world. For example, we have built an integrated circuit factory in the United Kingdom, and have recruited doctors from Germany, because they have a strong manipulative ability. We can also recruit the champion of world computer science competition from Novosibirsk University by providing 5 to 6times the salary. "

Undoubtedly, American talents are also Huawei’s targets. I would like to point out that the sanctions imposed by the U.S. government on Huawei will not stop it from recruiting U.S. talents. The decision of the government does not represent the opinions of all citizens.
It is a common and important means for politicians to make enemies abroad to transfer internal conflicts. This is a game of power. While the truth is, many American elites are opposed to the sanction. The sanction against Huawei, taking it seriously, is a loss to the entire technology community, and it is also a loss to each ordinary consumer like you and me.

MKBHD:“So as a person that really likes tech, all of this news is terrible, because having one less company means less competition which is less incentive for these companies to work hard and make great stuff. Even if you are not a fan of Huawei or if you don’t like their stuff, we have to admit that having them around is good for consumers it's good for us.”
Therefore, Huawei will continue to recruit talents from all over the world, including those from the United States. We have to admit that the U.S. still holds onto its position as the worlds’ magnet for the top tech talents worldwide.

3-2 Military Academy at West Point in Chinese circle

Well, what Huawei’s doing is not just recruiting talents, but more importantly, cultivating talents.

We can say that Huawei is the Military Academy at West Point in the Chinese business circle. Huawei has nearly 190,000 employees currently, not to mention those who have previously worked there. Countless consulting firms have been established under the fame of Huawei, but most of the founders have only few years working experience in Huawei with low reliability.

However, I have to say that Huawei’s culture has a huge impact on Chinese business circle. And it is supported by specific business practices, including the well-known “Huawei Basic Law”, integrated product development (IPD, from IBM) practice, etc. These practices have been referred and reused by various Chinese enterprises.

In addition to sufficient incentives, what else does Huawei use to attract talents? The answer is: culture. Indeed, rather than money, those who have real talent care more about a sense of mission. In other words, more attention is paid to the value and the significance behind the work.

The R&D of the integrated circuit is a typical example. The integrated circuit is not only the key for a company to take control over its own destiny, and it even has great significance at the national level.

Speaking of Huawei’s culture, you might mention the scandals like the Huawei “Navy”, a group of Internet ghostwriters paid to post online comments in favor of Huawei; the 251 incident, etc. Even Lei Jun, a big fan of Ren Zhengfei, couldn‘t help adding a few words.

Actually, before I ran Xiaomi, I was a big fan of Huawei. I would carry many speeches by Ren Zhengfei. But then Huawei came out with a sub-brand. From the day of its birth, LOW would come anyway. Forget about life and death,just fight!Lei Jun

The competitor’s sub-brand that Lei Jun speak of, if you know who this is, please share in the comments down below.

To be honest, such scandals are inevitable in such a giant company with nearly 190,000 employees. However, Huawei does need to be supervised and corrected on some issues.
Nevertheless, Huawei’s corporate culture is definitely top-level in the Chinese business circle. It has set an example for small businesses to learn from. There are many well-known symbols of Huawei’s culture, such as the phoenix, a damaged Il-2 in WW2, an intact ballerina shoe paired with a ballerina’s beat-up feet, as well as its most famous value: The doers rule.

The doers rule

3-3 The general's charm

My Values 

What we need to cancel is 2020.

They didn't expect that we had already prepared for the worst. They didn't expect that at all. They thought they could scare a country by pointing some big guns at us. They are wrong, you know. They thought capturing my family member would weaken our determination. They couldn't be more wrong.Ren Zhengfei

So how can we acquire the AQ? The three keywords are: Reflection, Courage and Passion.

I had been rejected, but I was still in love.

Most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

So which is the question that you guys are the most interested in? According to the DannyQ&A survey, the most popular question is: Will HarmonyOS replace Android? 818 people vote for this.

For this question, let’s go through the following: 
1. The official response from Huawei:

2. The best answer given by one of you; 

3. My own take on this question:



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