Huawei Owes Its Success to Obsession With Basic Research Investment, Founder Says
Yicai Global
/SOURCE : Yicai
Huawei Owes Its Success to Obsession With Basic Research Investment, Founder Says

(Yicai Global) July 26 -- The billionaire founder and chief executive of Huawei Technologies Co. has said the success of China's biggest smartphone maker is due to a fixation with spending of up to USD30 billion a year on research and development that would not be possible if it was a listed company.

Shareholders of listed companies would not countenance such investment levels, Mr. Ren Zhengfei told staff at a meeting in May, according to a recently published document. Shenzhen-based Huawei prioritizes survival over money, he said.

Mr. Ren told national broadcaster CCTV in early May that Huawei has more than 80,000 research staff and has started committing more than 10 percent of revenue to R&D each year. Last year, its research budget reached USD9.2 billion. In coming years, it plans to raise that amount. Last year, Huawei held the top spot in patent applications submitted by companies for the second year in a row, according to the World Intellectual Property Organization Gazette.

During his May talk with employees, Mr. Ren also commented on slackening iPhone sales, noting that Apple Inc. has large cash reserves but has a very conservative approach to investment. If Apple continues to shy away from making large investments, it will end up following in Huawei's footsteps, and Huawei will become as rich as Apple, he said.

However, he admitted that Huawei still lags the US tech giant in terms of vertical integration and it is hard to tell if Huawei could manage to narrow the gap within two or three years.

Huawei's net income jumped 33 percent to CNY36.9 billion (USD5.53 billion) in 2015 from a year earlier, on revenue of CNY395 billion, a gain of 37 percent.

Known as a down-to-earth character, Huawei's 72-year-old founder served in the construction division of the armed forces. He set up Huawei in 1987 with CNY21,000 (USD3,144) in borrowed money. Time Magazine listed Mr. Ren as one of the 100 most influential people in the world in 2013.

Mr. Ren also told staff that the smart terminal is the display device most needed by human civilization. It has a bright future, but it has been constrained by insufficient investment because people have been unable to fully grasp the opportunities it offers for human advancement, he said.

He believes Huawei will continue to prosper in the next two to three decades because it has abandoned the conventional 'pyramid' talent structure. It has removed the 'top of the pyramid' and replaced it with top-tier talent, enabling strategy and development to be determined collectively by all members of the company, rather by any single person. The company will continue to survive as long as the employees' collective decisions about its development direction remain correct.

As for the emerging virtual reality industry, Mr. Ren stressed the need for "strategic patience." The VR market will experience a bubble period in the near future due to delays to which no solution has thus far been found. Therefore, Huawei will focus more on basic research, and adhere to a "late mover" strategy.

Mr. Ren predicts that artificial intelligence may be applied to manufacturing and services. Future generations may be able to separate the soul from the body, so that a soul could be stored in a database, and the human body replaced by a mechanical one, he said. Over several generations, it could lead to the creation of collective wisdom lasting thousands of years, making production and service activities intelligent, he said.

Asked about whether Huawei will become a global leader, he observed, "We should not merely think about the prestige of being a leader, and burden ourselves with the responsibilities that come along with it. Prestige is meaningless for us."

"The reason we said we wanted to be a global leader is to boost morale and encourage our staff to further enhance performance, he said. "In fact, none of us is terribly smart. We became successful by relying on a big platform. We want to be successful to earn more money for our wives, rather than to acquire prestige or become a global leader."

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