Ren Zhengfei gives an interview while visiting Taiyuan, north China’s Shanxi Province, on February 9, 2021.
Xinhua News Agency/Getty Images
Ren Zhengfei, the billionaire founder of Chinese smartphone and telecom giant Huawei, says his company must focus on survival and cut back on business lines that can’t turn a profit as the global economy is poised to enter a recession over the next decade, according to local media reports.
The 78-year-old tycoon issued the stark warning in an internal letter that was first publicized by Chinese financial news outlet Yicai, and is now widely circulating among local media including the state-run Securities Times. Ren, who is estimated to have amassed a net worth of $1 billion from his privately held Huawei, didn’t elaborate on which businesses would be closed down. A Huawei spokesperson declined to comment.
The once reclusive tycoon, in the meantime, is also urging Huawei to drop the pursuit of greater scale and revenue growth, and instead focus on cashflow and generating profits. According to the letter, he says global consumption would come down “by a large margin,” and he doesn’t see any turnaround over the next three to five years due to myriad of reasons including the pandemic and the impact of war.
“Profit and cashflow must increase even if sales come down,” writes the billionaire. “I’d encourage people to fight for profit, and let the chill be felt by everyone.”
Huawei reported earlier this month that its first-half profit plunged 50% from a year ago to 15.1 billion yuan ($2.2 billion), while revenues declined 6% to $44 billion yuan. The company, which regularly reports its financial performance despite being private, saw handset sales slump by 25% year-over-year, while revenues from its carrier and enterprise software units both grew.
Aside from facing U.S. sanctions imposed since 2019, which restricts the company’s access to critical technology including Google’s Android operating system, Huawei is now grappling with a contracting smartphone market in China. Shipments went down by 14.7% to 67.2 million units in the second quarter, a steeper decline than the 8.7% decrease seen worldwide, according to IDC. The consultancy attributed the weakness to Covid-19 related restrictions and lackluster consumption in China, and predicted that demand would remain dampened in the second half.