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Huawei has a challenging year ahead

Challenging conditions face Huawei Technologies even though it continued to post solid revenue growth over the past few years. This was despite a flurry of challenges including regulatory bans in some countries. The arrest of the company’s CFO, over alleged sanctions violations, did not help. Similarly, Huawei’s placement on the US Commerce Department’s list of companies banned from using US silicon, hardware, or software unless the products are made outside the US, was another challenge.

First priority is survival

Thus far, Huawei has managed to weather these multiple challenges relatively seamlessly.  Through the first three quarters of 2019, Huawei continued to post solid growth, including:

  • A 24 per cent year-to-year increase in revenue.
  • The signing of more than 60 commercial contracts for 5G deployments.
  • Growing popularity of Huawei’s cloud service.
  • 185m smartphones shipped, representing 26 per cent year-to-year growth.

However, Huawei rotating chairman Eric Xu sounded a distinctly different tone in his New Year’s message to company employees.

The 18 per cent revenue growth in FY 2019 cited by Xu is solid, except that it implies that growth plummeted to just 4 per cent in Q4 2019.

Xu indicated ominously that the first priority for Huawei in 2020 will be “survival”. This foreshadows a very challenging year with a new focus on productivity and profitability.

Challenging restructuring initiatives on the way at Huawei

Xu has a lengthy to do list in order for the company to sustain growth, including:

  • Doubling down on its commitment to developing chipsets internally, to reduce reliance on US silicon providers.
  • Establishing an ecosystem of support around its Harmony operating system to counter the loss of access to the Android OS.
  • Strengthening relationships with local partners and regulators to ensure it is not shut out of long-term 5G engagements.

However, the biggest challenge is to implement massive internal organisational changes in order to make Huawei more efficient.

To that end, Xu announced a host of restructuring initiatives. These included plans to merge or downsize any teams that are not contributing to competitiveness or improving strategic support. Huawei also plans to implement a draconian management structure. Each year, the lowest-performing 10 per cent of managers (in Xu’s parlance, “the pit-diggers among us” as opposed to the “tree-growers”) will be terminated.

Comments could cause recruitment problems

Huawei has traditionally been considered one of the most stable and desirable places to work among Chinese college students. However, that reputation now runs the risk of being tarnished.

In December, Huawei came under fire after news of its alleged poor treatment of an employee who requested severance pay after being laid off went viral.

The tone of the New Year’s announcement from Xu runs the risk of further damaging Huawei’s attractiveness. Therefore the best and the brightest graduates may increasingly be inclined to take their talents elsewhere. Furthermore, Xu’s reference to his own company as “embattled aircraft” probably won’t help his cause, either with employees or customers.

NS Tech and GlobalData are part of the same group