Telecom Lead Asia: Ren Zhengfei, founder and chairman, Huawei, talks about telecom innovation at Huawei and in some global markets. He also shares his opinion about companies such as Cisco, Microsoft, Apple, etc.
He is very sharp when he talks about innovation, security, IPRs, global companies’ contribution, etc.
Telecom Lead is publishing highlights of a discussion between Ren and Huawei board of directors, managers and experts from the 2012 Laboratories in July 2012.
INNOVATION IN TELECOM
Huawei chairman says Hong Kong is home to numerous talented people. After finishing their studies in Europe or the US, a lot of people return to Hong Kong and teach there. This explains why Hong Kong provides quality education. I have repeatedly proposed that the Guangdong Provincial Government allow Hong Kong schools to establish branches on China’s mainland or in Guangdong to unlock their teaching potential.
First I will not talk about how to win a Nobel Prize. It’s important to see the value that innovations bring to human beings. China can’t create value because it does not have a nurturing environment, which I believe is the property right protection system. If you work overtime a lot in Silicon Valley, you may make a large fortune overnight. A friend of mine owned a company which was larger than Huawei when I visited the US more than twenty years ago. He always aspired to grow rich overnight. However, he has not realized his aspiration over the past two decades. Millions of people who think like my friend may devote their whole lives to society or push someone to achieve success, like Steve Jobs and Mark Zuckerberg (founder of Facebook). The property right protection system shows us the possibility of growing rich overnight. Without property right protection, the impulse to innovate will be suppressed.
In addition, tolerance is insufficient in China. Now that other people do no harm to you, why do you always keep a close eye on them? As already observed, some people throw mud at outstanding people on the Internet. Facing this, how can these outstanding people dare to stand head and shoulders above the rest? We don’t have a clear property right protection system or sufficient tolerance, so China faces hurdles in achieving innovations. Everyone knows Facebook. There is nothing special about it. Had it first appeared in China, there might have been a lot of copycat versions, and its founder might have been deserted and the first copycat might have collapsed and been deserted.
Huawei chairman said the US has a stringent intellectual property right (IPR) protection system which forbids copycat conducts. Under the system, violators may be fined several billion dollars. As a result of such a stringent protection system, everyone knows that it’s forbidden to violate the IPR of others. In fact, IPR protection is our need rather than a means that others may use to dampen down us. If we become aware of this, we will see a promising future for scientific and technological progress in China in the next few decades or the next century. However, scientific and technological progress should not merely bring short-term benefits. It takes twenty to thirty years for a theoretical breakthrough in science and technology to create value for and contribute to society.
According to Huawei chairman, when Irwin Jacobs, founder of Qualcomm, made breakthroughs in code division multiple access (CDMA) in the 1960s, China was undergoing the Cultural Revolution. How can we grumble at not becoming Qualcomm once we find that it makes huge profits? Twenty or thirty years ago, we were taking offense by pen or taking defense by force, and those who bent their mind studying were regarded as idiots. Now, it’s time we calmed down and became down-to-earth. In doing so, we may see hopes in the forty or fifty years to come. However, we are unable to calm down. Why? This is because we don’t have a positive academic environment. Fortunately, you are a Hong Kong university professor rather than a university professor of China’s mainland who has to write a certain number of theses. If a professor from China’s mainland cannot complete these theses, he/she may have to copy others’ theses. No copycat can win a Nobel Prize. We must create a positive academic environment.
First, concerning innovations at Huawei, it’s necessary to emphasize the theory of value – innovation is only a means to an end: value creation. Yet the future value points are just a presumptive framework, which is unclear for the time being. We presume that the information pipe will become as wide as the Pacific Ocean. In response to this, we need to build the Noah’s Ark that helps Huawei tide over data floods. We are not sure whether this presumption is right or not. If the pipe becomes as wide as the Pacific Ocean, Huawei makes the right bet. But if the pipe has a diameter that is just as wide as the Yellow or Yangtze River, will Huawei screw up? Many companies have screwed up, and Nortel is one of those who made the wrong bet.
In China, small network communications companies also had made the wrong bet or made the bet too early. Soon after these companies collapsed, the broadband era came. If these companies emerged several years later, they may have seen a good time. Heroes are usually not born at the right time. Those who are staunch and are not recognized by others are not born at the right time. If they are born in times of war, they might have become heroes or generals. We presume that data flows will grow increasingly, and this presumption is made based on social needs and value. This presumption is not necessarily in line with the law of society. In Karl Marx’s presumptions, there were no cars or airplanes. But what is the accurate definition of “material abundance” mentioned by Karl Marx? Since he did not provide a standard mathematical formula, we anticipate that there will be higher standards. Therefore, our presumption should be open to criticism in the long run. If it’s wrong, we have to modify it. Chief scientists should lead us in making breakthroughs.
Second, we should be more tolerant of innovation failures. Even so, we must have a specific evaluation mechanism, because not all areas can tolerate failures without limit. What you are studying is about high-end technologies, so I think there are no specific criteria for such domains. However, there should be specific evaluation criteria for some areas. For example, the delivery of contracted projects is quantifiable, and any failure in delivering such projects may imply low management capabilities. Because there are no specific criteria for the areas you are engaged in, we do not know how things will turn out in the future. Therefore, you must be open-minded. You can exchange your ideas with others in cafe bars and share what you think with more people on-line to inspire the new generation to think. In doing so, not only Huawei people but also the entire society will know what you are thinking. We are supposed to contribute to society.
When your thinking can influence some people, they may keep moving forward and finally succeed. Therefore, the key point of innovation is to make breakthroughs based on existing practices. Maybe I am no longer alive when you succeed, but I am open-minded in today’s conversations with you. I hope that scientists like you can also be open-minded. Just like me. Maybe you are no longer alive when your predictions become true, but in my opinion, it does not mean that you are wrong.
Here I will give you an example. The theory of turbine engine for airplanes was developed by Wu Zhonghua, a Chinese and the Director of the Institute of Engineering Thermophysics in Chinese Academy of Sciences. He wrote the equation of three-dimensional flow in turbomachinery designs and published related theses in the 1950s. The UK developed the first generation of Spey engine based on this theory. After the downfall of the Gang of Four, Deng Xiaoping paid a visit to the UK. During the visit, Deng asked the UK government whether China could introduce the technology of Spey engine. The UK government said “Yes”. Deng was very happy and saluted the scientists of the UK. Surprisingly, the scientists of the UK stood up and presented their compliments to China because the technology of Spey engine was invented by China. After returning to China, Deng Xiaoping learnt that the theory of three-dimensional flow was produced by Wu Zhonghua. At that time, Wu Zhonghua was raising pigs in the May Seventh Cadre School in Hubei. Deng Xiaoping invited Wu Zhonghua to Beijing and appointed him as the Director of the Institute of Engineering Thermophysics in Chinese Academy of Sciences.
There is another example. As we all know, currently Chinese characters are very popular due to the easy-to-use Chinese pinyin. This popularity is attributed to the National Conference on Language Reform in 1955 and Zhou Youguang, a great contributor of Chinese pinyin. Zhou Youguang, more than 100 years old now, is a professor of Fudan University. In the first half of Zhou Youguang’s life, he had been studying economics to save the nation through industries. But in his later years, he started to study linguistics. In 1979, Zhou Youguang was invited to the International Standards Organization to state China’s views on language. Before he left for Paris, his employer told him that the government would not bear any of his travel expenses because he was invited by foreign countries but not assigned by China, so he had no money when he left. After Zhou Youguang’s three years of efforts, the International Standards Organization agreed that Chinese pinyin is used to spell Chinese characters. Without Zhou Youguang’s efforts, Chinese characters would not have been used in the computer age. This is really a great accomplishment. It is all attributed to our ancestors’ great efforts that our Chinese characters can become so simple and easy to learn after hundreds of years of language reform. All of the above examples tell us that making breakthroughs requires efforts of several generations. Today, we still cannot know what the result will be.
GUIDANCE ON STRATEGY OF FORCED ATTACK
Today I will not direct this issue towards the platform. I just want to talk something about chip design. In a few years’ time, we should have made systematic breakthroughs in hardware systems, especially low-traffic hardware systems. A great deal of the hardware of our end products will be standardized, generalized, and simplified. We can institutionalize these achievements. Through the institutionalization, our R&D team will release at least several thousand engineers proficient at designing circuits. They can be assigned to chip development. I once asked He Tingbo whether she could develop her chip design team into a team with 20,000 people. After engineers with proven track records in circuit design turn complicated large circuits into microcircuits, they will become chip design experts. If we have 20,000 engineers focus on the future pipe science, can’t we integrate this system vertically from high-end to low-end?
There are two typical success stories about integration. The first story is about IBM. IBM attacked Apple in the rear in the field of PCs. IBM made tremendous contributions in PCs. However, as new high-tech industries expanded, IBM found it difficult to address new challenges. Then it invented compatible PCs, which might be manufactured by anyone who paid some money. In other words, IBM completed the integration horizontally for PCs. This is a contribution to mankind. IBM was very successful in this horizontal integration. The other success story about integration is Apple, which successfully completed a vertical integration. What integration should Huawei aim at? I think Huawei needs to aim at an integration along the pipe. The communications network is like the Pacific Ocean, the Yellow River or the Yangtze River. The enterprise network is like an urban water supply system. The devices can be thought of as taps. Integration along the pipe will be good for us.
How can we launch forced attacks? It counts on you. I can only give you people and money. When Lin Biao launched an attack, he deployed his troops vertically. The troops responsible for attacking the city concentrated their strengths and made a breach. Two main troops forced into the city through the breach then and expanded further to both sides. Then four more divisions forced in, expanded even further to both sides, and achieved more positive results. Are there instances in our R&D that we evenly deploy our forces? I once told He Tingbo that I would give her US$400 million and 20,000 people for R&D. Hearing this, He Tingbo was frightened. But I insist on giving her people and money. We must stand up in this field and reduce our reliance on the US.
HOW TO BALANCE LONG-TERM INVESTMENTS AND SHORT-TERM RETURNS
Those who fail to figure out the relationship between short-term investments and long-term returns are not generals. Any general should have a strategic awareness. How can you be a general if you don’t have any strategic awareness? This is my first point. Second, I want to talk about the dissipative structure. Actually, Huawei is now in a relatively good stage. We should dissipate our current advantages and create new advantages. The whole society is going through recession and the world economy may decline in a circular way. Compared with our past, we have declined, but we still live better than other companies. Our net profit this year is estimated to reach US$2 billion to US$3 billion. Therefore, we cannot hesitate in making investments for the future. It is the lack of leaders, generals, and strategic awareness that causes our hesitation in making investments.
Without the foresight of generals, it is impossible for Huawei to have developed from an agent trading analog switches with 30 or 40 user lines to what it is today. Why cannot we create generals now? The reasons lie in our culture and appraisal mechanisms. We argued for an entire afternoon at the organizational structure transformation meeting held in Guangzhou. At last, Hu Houkun remarked, “We must change our benefit mechanism from ‘granting’ to ‘acquiring'”. Granting means the managers assess the performance and decide how much money will be granted. Everybody wants to get a lot of money. In the future, we should change from “granting” to “acquiring” and “sharing”, which means we will reverse the entire appraisal mechanism to be benefit-centric. We have a massive organization at headquarters, because HQ controls benefit distribution. A big share is reserved to increase the bonuses and salaries at HQ. Only a small share is left and granted to our colleagues in field offices, such as Afghanistan. Such a “granting” mechanism can neither encourage the creation of heroes nor help generate strategies, so we must adjust this mechanism.
During the transition period when the mechanism is under adjustment, we call for more employees with strategic awareness to take managerial roles. We must be farsighted. Actually, today we are gambling on the future on whether our strategic visions are correct or not. To be specific, we are gambling on whether the pipe will have a diameter as wide as the Pacific Ocean.
Will it be possible for us to create a pipe system that has a diameter as wide as the Pacific Ocean? I would like to take the competition between Airbus and Boeing as an example. Boeing assumes that this is a network-like world in which point-to-point flights can reach small cities directly without flight transfer at hubs. Therefore, Boeing does not produce large aircraft but persists in improving its point-to-point flights. In contrast, Airbus assumes that this is a world connected by “hubs”. Passengers should first fly to Frankfurt by large airliners and transfer to other places in Germany by smaller aircraft. Therefore, Airbus took the lead in manufacturing large aircraft with a capacity of 300 passengers.
Today, we must assume what our future architecture will look like. If we cannot make a clear assumption, we have to gamble on our future, i.e. how much bandwidth we will realize. Broadswords and spears cannot conquer fleeting feet. We should develop some advanced technical weapons to keep up with the fast moving trends. We cannot expect we have wise leaders, too. We will encourage everybody to develop strategic awareness.
DEVICE OPERATING SYSTEM
Huawei’s chairman says if Huawei is granted equal rights to use these three operating systems, we don’t have to develop an operating system of our own. Why can’t we make use of others’ advantages?
The President of Microsoft and the CEO of Cisco once told me that they were afraid that Huawei would protest against monopoly with the rest of the world. I reassured them that Huawei would never oppose monopoly. We can also make a lot of money simply by selling products at prices slightly lower than those of Microsoft and Cisco. Microsoft and Cisco are like our umbrellas that protect us from being burned by the scorching sunshine. Why would we get rid of the umbrellas? If we take them away, we will be directly burned by the sunshine and sweat a lot. Our sweat will feed the weeds at our foot, which will grow and challenge us with low prices and make us suffer. It is a strategic act for us to develop our own device OS now. If they forbid us from using Android and Windows Phone 8 one day, will we be caught empty-handed and have nothing to do?
For the same reason, when we develop high-end chips, I also allow you guys to buy high-end chips from the US. I think you should use their high-end chips as much as possible and gain a good understanding of them. When they refuse to sell things to us, our products can also be used to replace them even though the quality is not as good as theirs. We cannot afford to embrace an unreasonable sense of pride, as it will kill us eventually. Our direct goal is to make money and take up Shangganling. If we cannot take up Shangganling, we should at least take up the Wall Street. We cannot be narrow-minded. The reason why we develop the OS is the same as that why we develop high-end chips. We wish others can allow us to use their products. However, if they forbid us from using their products, our backup systems must be used and play the same role.
I have already talked about this. Our company is open. Therefore, suppliers should remain the major source of our chips or we should even use their chips first. Our self-developed high-end chips are mainly used for disaster recovery. Which low-end chips to use is an issue of strategic importance. I suggest you have serious discussions about that. You thought that giving up suppliers’ system would probably mean establishing a closed system. A closed system is sure to perish when the energy in the system is exhausted. Whether it is the human resource system that I have mentioned earlier or the technological system, they all should be open. How to strike a balance in this world in a scientific and rational way is a very difficult question. I cannot explain it clearly to you in just a few words.
First of all, I want to say that we should not get involved in the semiconductor industry only to gain profits. Semiconductor production is related to chemistry and physics, in which we don’t have any advantage. Our advantage is in data logic, that is, the mathematical logic in software and circuit design. Even if we set up a factory and produce 12-inch semiconductors, we will lag behind if someone else produces 16-inch semiconductors. We cannot continue to take the lead in the manufacturing industry.
Secondly, we should remain dedicated to our jobs, even if there is no significant success for a long time. This is especially true to those in basic research. In the 1950s and 1960s, film actors earned humble salaries. I once heard that in the early 1980s, top national stars like Liu Huan and Wang Gang went from Beijing to Taiyuan to perform in concerts and earn some extra money. Do you know how much they earned for performing in such a concert? CNY20. However, you should not say that they made little contribution to the Chinese culture. When I went to Russia, what impressed me most were some people like Pushkin, Turgenev, and Tolstoy. They had made significant contributions to the Russian culture and civilization. Russia is a big cultural country, and its culture affects the whole region.
Recently I have been watching a TV series about Wang Guowei, who was regarded as “a pile of dog shit that is not worthy of mentioning” by Lu Xun. When I look back and I find Wang has great philosophical thoughts. Back at that time, when Zhang Zhidong was digging mines and setting up factories, and when Li Hongzhang was motivating the Chinese to learn from western countries, Wang said, “China’s rejuvenation should count on philosophy.” However, he was abandoned by history. As a professor of Tsinghua University, he killed himself. There are two tortured souls in Chinese history. People said Lu Xun was the most tortured one, but as we move forward, we can say Wang Guowei is also the most tortured one. Wang said only philosophy could change China. He is right. The UK, the US, Japan, France, Germany, and the whole Europe have clear philosophical systems, so they have never lagged behind [y1] over hundreds of years.
Our policies change from time to time. That is because we do not have unified values or philosophical views. I recall Wang Guowei because of what he said. He criticized the westernization movement and suggested developing philosophy first. He realized that only when people’s minds were changed could China have new mechanisms and systems. Wang was “a pile of dog shit that is not worthy of mentioning”, but now we think he is a great person. Another great figure is Li Hongzhang, who once was also “a pile of dog shit that is not worthy of mentioning”. When he went to Japan to negotiate and sign the Treaty of Shimonoseki, he took his son with him. His son witnessed the signing of the Treaty, and later the May 4 Movement broke out. Today, however, if you review the history, and watch The Bloody Dusk, you will find that Li is a national hero. People will understand this conclusion in the future. Therefore, we should not be obsessed by current glory or success. What really matters is to contribute to the Chinese nation in the long run.
For people doing basic science, we should pay more attention to their value and contributions that will be manifested in the future. Our company should tolerate strange thoughts like “crooked melons and cracked jujubes”. In the past, some people regarded “crooked melons and cracked jujubes” as inferior ones. I think that is wrong. Cracked jujubes and crooked melons are the sweetest. Although most people think they are inferior, we should know their value from a strategic viewpoint. Today, if we look back and reevaluate Wang Guowei and Li Hongzhang, we will see them as “crooked melons and cracked jujubes” in history. People in basic research should not be too eager for quick success. We have never asked you to compete on the number of theses. We just want you to do research in a down-to-earth manner. However, we have not done very satisfying jobs, partially because we lack unified values. At present we are not sure what unified values should be, as they can be shaped only through several generations’ efforts, but we will try our best.
First, a major change you should notice is that the pipe we have been talking about is not just about telecommunications. The second point is about retaining customers. We should see that we have played an important role in this aspect, and it is not just about an issue of who to count on. Our strength lies in the pipe, and we do not have any advantage in devices. Whether we can gain advantages needs to be considered using a new model. We should not put all our hopes on carriers. We can learn from the internationale: “Let us not count on supernatural assistance. To create happiness, we can count only on ourselves.” I told many girls that they should not put all their hopes on finding a good husband. They will live for at least 50 to 60 years, so what will they do if their husbands left them after 10 or 20 years? They have to be self-dependent.
The device market will surely witness remarkable development, but the opportunity may not belong to us. When having a talk with me, a senior officer from Ericsson was very happy and said: “We are finally exiting from the device market, and yet you start to get into the market.” What he laughed at is not exactly wrong. It depends on whether we can make breakthroughs. Our device business has made significant progress in the last two years, but we might not be the winner in the end.
We used to incorporate more than 80 software packages into a hardware system to maintain the equipment, resulting in opaque pipes and slow traffic. These packages are like the weeds in the Yangtze River that slow the flow of water. If we clean up the weeds, the wall of the pipe will be cleaner, and the flow of water will be faster. In our situation, we take the operational software out of the hardware pipe and build it into a stacking system which we call the pipe operating system. As for a certain function of the system, testing, for example, we can further take it out and turn it into a granularity. We could incorporate it into the network, or sell it as a single product. In this way, the hardware system of the pipe is transparent and is free from cyber security issues. Whether the granularity is incorporated into the network or not depends on applicable laws and regulations. If needed, the customer can purchase the granularity from Huawei or other vendors. Anyway, Huawei provides a transparent hardware system. This is the software sales model. In addition, we must build the market value of software. For example, the market value of the enterprise resource planning (ERP) lies in the fact that one can never buy it at a low price. If your granularity is too small and is taken as a dowry, your mother-in-law should give you some money.
Huawei is the second largest telecom equipment player in the world. It will try to increase its revenue share by strengthening focus on enterprise and devices business. But its main challenge is to retain market share in telecom equipment business due to downturn in key telecom markets in the world. Hope Huawei chairman’s vision and innovation will take the Chinese telecom equipment maker to new horizons.