Huawei founder and CEO Ren Zhengfei warns of a coming financial crisis - and reveals the company has been learning from Trump.
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In his first appearance in a public forum in the west, Huawei boss Ren Zhengfei denies he is mysterious, but also describes himself as knowing nothing about technology or finance. The 70-year-old CEO said his biggest challenge was coping with Huawei’s fast growth, and gave a graphic illustration of his demanding management style.
Huawei’s reclusive boss Ren Zhengfei has opened up on his succession, his reluctance to take the company public, difficulties in retaining staff, and why the Chinese firm is in the US sights.
Yet probably the biggest surprise in his recent interview with Chinese journalists is the revelation that rival John Chambers had consulted him about Cisco’s succession.
The two companies are fierce competitors, and Chambers has reportedly described Huawei as Cisco’s biggest threat.
Asked about retirement and his CEO succession plans, Ren said Chambers, who turns 65 in August, “personally sought my opinion” about his own replacement. “Although we are competitors, we still have useful exchanges,” Ren said, adding that “of course, I didn’t know who would be the best for their succession.”
He did not say when or where the discussion took place.
Ren, who turns 70 later this year, said he had no plans for retirement, citing his “friends” Maurice Greenberg, the 88-year-old ex-AIG chief, and Simon Murray, 74, the storied former head of the Hong Kong Hutchison Whampoa group, who are both still active in business.
He said Huawei’s succession problem was that “we have too many potential successors, not too few.”
Ren, who owns 1.4% of Huawei stock, says he would not allow any family member to take his place as CEO, although he was not asked about the role of his daughter, Cathy Meng, who is CFO and a board member.
The Huawei founder also gave a curious explanation as to why he won’t take the company public.
Huawei executives have said that the privately-held firm can raise all the funds it needs from cashflow and by issuing shares to employees. But Ren said that if it went public Huawei would inevitably “diversify,” and that would “destroy 20-plus years” of growth.
“If we don’t diversify, we will have no cash difficulties,” he said, forecasting that Huawei will spend up to $10 billion on R&D in the near-term to keep pace with technology change. “[W]e are determined to not enter the capital markets and not to diversify. If our development doesn’t need too great a scale, how could cash problems emerge?”
Ren didn’t explain what he meant by diversification, but by the standards of western business, Huawei is already an extremely diverse business. Unlike its western rivals it is in every part of the fixed and mobile telecom equipment business, not to mention its flourishing enterprise and device units.
Ren acknowledged Huawei suffered from “an outflow of talent,” especially when one of China’s internet companies is prepping for an IPO. Unlike those internet firms, the size of the company meant “we can’t just incentivise a few people - we need to attract 15,000.”
He said he was “hurt” by the recent resignation of senior handset executive Colin Giles after less than a year in the post but could not hold him back (see Huawei Handset Man Jumps to Lenovo).
“We want to gradually change, but if the world’s best talent won’t enter, how to make [Huawei] the world’s best company?”
Ren said he regarded the US prohibition on Huawei equipment as aimed at China, not the firm.
“The stronger China becomes the more the US will attack it. “In fact, the US is not attacking Huawei, it’s attacking China, because the US does not want China to become strong, and its always looking for a new point to aim at.”
He also demonstrated himself a proud patriot, expressing himself in just the kind of language an ex-PLA officer might use. Asked if he had a faith, Ren said:
I have a faith, that is I have faith in our country today. We previously thought capitalist society can massively liberate productive forces, but we have discovered that as social inequalities have expanded, problems have emerged, bogging down our development.
The [Communist Party] Third Plenum is on the correct path. Previously we weren’t clear which of the big three continents - the US, EU and China – would rise first. Now we are clear - China will certainly rise first. China has recently encountered some short-term transformation problems, but over the long-term these will certainly be solved, and following that our development will be increasingly strong.
UPDATE: The word translated above as 'diversify' (duoyuanhua) can also mean 'pluralise', which at least one other blogger has used. Under that translation, Ren is saying that going public would mean dilution ('pluralisation') of control of the company - which makes sense - but he is also suggesting that by going public the company would face shareholder demands on earnings which would diminish its R&D effort; a number of untested assumptions. So while it is probably a better translation, the thinking is equally disingenuous.
Huawei’s publicity-shy CEO Ren Zhengfei has made his first public remarks since a Congressional committee labeled the company a security threat.
And while he did not address the committee’s claims directly, Ren said Huawei was “determined to make internal adjustments to ensure that our equipment is the most secure, transparent, high-quality equipment in the world.”
Ren’s rare public disclosure was posted by Huawei cyber security chief John Suffolk on his personal blog following a private meeting between the two. Ren gave his permission for his comments to be published.
The 68-year-old former PLA officer has never been interviewed by the foreign media and has not talked to the Chinese press for more than a decade, although his remarks at internal staff meetings are sometimes relayed to the Chinese media.
Despite his long public silences, Ren’s role in creating China’s largest private-sector business has made him one of the country’s most feted business leaders. In contrast, his refusal to attend the recent Washington hearings sharpened the image of Huawei as a firm operating in the Chinese shadows, unwilling or unable to explain itself.
In the event, Ren did not elaborate on how the vendor would improve security, but Suffolk cited the company’s existing policies - for example, ensuring equipment is “transparent so people can inspect what is passing through,” and that hardware was interchangeable so customers can mix and match with vendor software.
Unlike his boss, Suffolk, a former UK government CIO, was not afraid to make a political point:
We hope that those who wish to close markets, stop competition and innovation under the false banner of national security will take the strategic customer focused lead of Mr Ren and pour their energies into creating a free market with substantial competition and innovation so all citizens can benefit.
Huawei has taken the extraordinary step inviting an investigation by the US government to clear up “any concerns it may have” about the Chinese telecom vendor.
The privately-held firm said claims that it was closely connected to the PLA and threatened US national security “have had a significant and negative impact on our business activity.”
The appeal, in an open letter published on its website, follows Huawei’s ham-fisted attempt 12 days ago to force President Obama to make a decision over its acquisition of Silicon Valley firm 3Leaf. Instead of taking Cfius’ advice and divesting the assets as virtually every other company had done, Huawei had escalated the issue by calling on the White House to overturn the ruling.
In doing so it added another topic to the crowded US-China bilateral slate, as well as more closely identifying itself with the government it was trying to distance itself from.
Whether by accident or design - or under the advice of Chinese officials – Huawei made an about-face four days later, declaring it would unwind the 3Leaf deal.
The one revelation in today’s 2,000-word appeal, which appears under the name of US chairman Ken Hu, is Huawei had notified the Department of Commerce at the time of the acquisition last year and was told no export licence was required. Previously, the company had been reported to have not notified the US government about.
In the letter Huawei says the sole basis for the claims that it is tied to the Chinese military is CEO Ren Zhengfei, who left the PLA in 1987 to set up the company.
It is a matter of fact that Mr. Ren is just one of the many CEOs around the world who have served in the military, and it is also a matter of fact that Huawei has only offered telecommunications equipment that is in line with civil standards. It is also factual to say that no one has ever offered any evidence that Huawei has been involved in any military technologies at any time.
However, Huawei did not elaborate on the core issue - its ownership - structure other than to use its traditional formulation that it is "owned entirely by its employees."
It said the allegation that it posed a threat to US security derived from “a mistaken belief that our company can use our technology to steal confidential information… or launch network attacks.”
If the United States government has any real concerns of this nature about Huawei we would like to clearly understand those concerns, and whether they relate to the past or future development of our company.
The rejection of the 3Leaf deal is the latest in a series of setbacks for Huawei in the US market because of security concerns. Its planned minority acquistion of 3Com in 2008 collapsed, and last year it was ejected from a Sprint Nextel wireless tender, both on security grounds.