From "Patch Hole" To "Survival" HUAWEI Faces New "Extreme Challenges".

After the US Department of Commerce plans to revise the export rules for HUAWEI, the huge uncertainty is enveloping the whole semiconductor industry. While waiting for HUAWEI's voice, we are looking for new cooperation mode.

On May 18th, at the first meeting of HUAWEI global analyst conference, Guo Ping, HUAWEI's rotating chairman, said in her opening speech: "the past year has been a very difficult year for HUAWEI. When we entered the entity list last year, we were in a hurry and we had been communicating with customers, partners and HUAWEI staff. Most of us could understand that. Now we are continuing to communicate. The ban has brought great pressure to our business and risk management, but the good news is that we are still alive, and R & D and inventory have increased dramatically.

Under the challenge of "filling holes", HUAWEI passed through 2019 safely, and the mountain peaks in 2020 were more precipitous. Guo Ping said bluntly: "survival is the theme word of HUAWEI now."

In the face of the further action of the United States, HUAWEI has made a prediction. "For the new rules two days ago, many situations are not yet clear, and they are still being evaluated. As a ICT device and terminal company, HUAWEI can achieve the design of integrated circuits. But beyond the ability to do so does not exist, so we are trying to find how to survive. Guo Ping told the media, including the twenty-first Century economic report.

On the same day, HUAWEI also made a formal response to the new regulation of export control: HUAWEI strongly opposed the US Department of Commerce's revision of HUAWEI's direct product rules. "The revision of this rule is not only a HUAWEI enterprise but also a serious impact on the relevant industries worldwide." In the long run, the trust foundation of global cooperation in chips and other industries will be destroyed, and conflicts and losses in the industry will further intensify. The United States using its own technological advantage to suppress other countries' enterprises will weaken the confidence of other countries in the use of US technology elements, and ultimately hurt the interests of the United States itself.

The new round of competition has been launched. Guo Ping said: "our business is expected to be inevitably affected. We will do our best to find solutions, and we hope that customers and suppliers will work together with HUAWEI to eliminate the negative effects of this discriminatory rule. "

Facing difficulties and seeking survival

In the face of pressure, in 2019, "filling hole" became the main theme of HUAWEI. "Technology development is severely restricted. Therefore, HUAWEI has increased R & D investment in the past year, and invested 131 billion 700 million yuan in research and development alone, an increase of 30% over the same period, and inventories as high as 167 billion 400 million yuan, up from the same period last year. 73.4% " Guo Ping told reporters, "including the redesign of over 60 million lines of code, more than 1000 new veneers, new supply materials for new choices, and so on, we have done a lot of efforts and costs. These inputs lead to uninterrupted service. "

Wang Yanmin, President of HUAWEI consumer BG global ecology development department, talked about the progress of HMS in overseas: "we can not use Google ecosystem, we are forced to develop HMS ecosystem. Over the past year, we have increased investment, especially in the use of platforms and platforms by developers. Since May 16th last year, the HMS ecosystem has been increased, and more than 1 million 400 thousand developers have increased by 150% over the beginning of 2019.

From the 2019 performance, HUAWEI has maintained growth. However, Guo Ping said that revenue last year was about $12 billion different from the original plan. Last year, the growth of every quarter was also declining. At the same time, the contract had more difficulties than before.

Although the United States is increasingly pressing HUAWEI, Guo Ping said HUAWEI is struggling to survive and strive to move forward and adhere to globalization rather than isolation. In 2019, HUAWEI purchased US $18 billion 700 million, and as long as the US government allowed, it would be very willing to continue to buy American products, but it would also nurture more suppliers.

HUAWEI continues to strengthen the spare tire while accelerating the reshaping of the supply chain. The US changed its export rules, mainly aiming at HUAWEI's chip manufacturing related industry chain. As the core supplier of HUAWEI chip foundry, TSMC told the media in May 18th that the company did not disclose details of specific customer orders, and TSMC has been complying with laws and applicable regulations, and is assessing the impact of new export control measures.

On the other hand, HUAWEI is also preparing to spend the winter by increasing its stock reserves. CITIC electronics said in its report: "from HUAWEI's balance sheet, we can see that in 2018 and 2019, HUAWEI's inventories increased substantially, which mainly increased raw materials, and the proportion of raw materials to inventory reached the peak in recent years in 2018. 37.5% In 2019, inventories accounted for a new proportion of revenue. 19.5% 。 Therefore, we can reasonably infer that in 2018 and 2019, HUAWEI accumulated a large number of related components and products for emergency needs. On the whole, the history of the US suppliers' self-made cutting starts to resume about 2 months for HUAWEI's supply, while HUAWEI itself has a certain stock cycle. Although it will face some pressure in the short run, the big probability will not lead to a complete stop.

A semiconductor practitioner also told the twenty-first Century business news reporter that, like last year, the provisional license would be given to enterprises after the ban was issued. The details of the rules are unclear.

The United States is pressing harder and harder.

In fact, the suppression of HUAWEI by the United States is not a sudden impulse in the past two years. It has been investigating and prosecuting HUAWEI continuously for nearly 20 years. However, in these processes, HUAWEI has not only become weaker but thrived as a leader in the communications industry.

It seems that there are three key points in the history of HUAWEI's "card". The two years have been fiercely vicious, but the logic of the United States has its continuity. It is still competing for interests in the communications industry, the underlying technology and intellectual property rights.

The first node was HUAWEI's early rise in 2003. CISCO sued HUAWEI, saying that HUAWEI violated its intellectual property rights and prosecuted. Finally, HUAWEI and CISCO finally released their statements and reconciliation. A year later, in 2004, HUAWEI was very difficult to manage and almost decided to sell it to Motorola. At that time, HUAWEI founder Ren Zhengfei put forward the limit survival hypothesis. If HUAWEI continues, then we must make preparations for competition with the United States one day.

As expected, normal competition will soon open. Since 2007, a series of acquisitions have been blocked almost every year in the United States for HUAWEI. From 2007 to 2012, 3Com, 2Wire and 3Leaf that HUAWEI wanted to buy were all stopped. Bidding in the United States was also intervened.

By 2012, HUAWEI had come to the second hard battle node. In October 2012, the US House of Representatives issued a report that HUAWEI and ZTE, two communications equipment manufacturers in China, could pose a threat to us national security and keep two companies out of the US market. The House report also mentioned CISCO, because the report said "there is evidence that HUAWEI ignores the intellectual property rights of US companies and entities".

And in 2013, HUAWEI became the first in the communications industry to win the first prize. As you can see, in the past 10 years, there are many repeated lawsuits and issues. Competition between various purposes and communication industry has made the hunting around HUAWEI extremely complicated and involves a lot. But over the years, the United States has not cited HUAWEI's "real hammer", instead, it has washed HUAWEI in another way.

Until 2018, the third critical turning point came. In August 2018, the US fiscal year 2019 National Defense Authorization Act was passed, and the 889th requirement of the bill prohibits all American government agencies from buying equipment and services from HUAWEI. Then, at the end of the year, HUAWEI executives took place. Then, in May 16, 2019, a thunderstorm, the United States directly put HUAWEI into the entity list, cut off some cooperation between American enterprises and HUAWEI. HUAWEI had to readjust its direction and take out a long researched spare tire, and its chip design company, Hass, entered the public eye. This year, the United States refers to Hass, trying to cut off the manufacturing process of chips.

More importantly, semiconductors are also the underlying foundation for communication and 5G development. It is worth noting that in 2016, one thing happened in the communications industry. In 2016, HUAWEI launched the Polar Code (polarization code) scheme, becoming the eMBB scenario coding scheme of 5G control channel. In 2019, HUAWEI's number of votes was higher than that of Qualcomm, and was elected chairman of the global 5G Standards Association. Although China has no pressure on the US communications industry, it signifies that Chinese telecom manufacturers have a higher voice in the era of 5G, and the industrial boundaries between the two countries are colliding.

In February 6, 2020, US Attorney General William Barr (William) Barr said in a speech that China's technological offensive posed unprecedented challenges to the United States. 5G technology is in the center of the future technology and industrial world. 5G relies on a series of technologies, including semiconductors, optical fibers, rare earth and materials. China has begun to make all these elements domestically. In the next 5 years, 5G's global layout and application dominance will become. Is there enough competition between the United States and its allies to compete with HUAWEI to maintain and occupy enough market share to maintain a strong competitive position? This time window is very short, so the United States must act quickly.