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    GOOGL   US02079K3059

ALPHABET INC.

(GOOGL)
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Huawei founder urges shift to software to counter U.S. sanctions

05/24/2021 | 08:53am EDT

* Huawei founder calls for open source approach

* Says U.S. runs risk of being excluded from market standards

* Suggest younger staff should get psychological support

SHENZHEN, China, May 24 (Reuters) - Founder of Chinese tech giant Huawei Technologies Ren Zhengfei has called on the company's staff to "dare to lead the world" in software as the company seeks growth beyond the hardware operations that U.S. sanctions have crippled.

The internal memo seen by Reuters is the clearest evidence yet of the company's direction as it responds to the immense pressure sanctions have placed on the handset business that was at its core.

Ren said in the memo the company was focusing on software because future development in the field is fundamentally "outside of U.S. control and we will have greater independence and autonomy".

As it will be hard for Huawei to produce advanced hardware in the short term, it should focus on building software ecosystems, such as its HarmonyOS operating system, its cloud AI system Mindspore, and other IT products, the note said.

Former U.S. president Donald Trump put Huawei on an export blacklist in 2019 and barred it from accessing critical U.S.-origin technology, impeding its ability to design its own chips and source components from outside vendors.

U.S. President Joe Biden's administration has given no indication it will reverse Trump's sanctions.

The blacklist also barred Google from providing technical support to new Huawei phone models and access to Google Mobile Services, the bundle of developer services upon which most Android apps are based.

Huawei's 2020 annual report did not break down how much of its 891.4 billion yuan ($138.70 billion) revenue was from its software.

OPEN SOURCE APPROACH

Ren's note also said the software push would depend on finding the right business model and that the company should adopt an open source approach, calling on staff to "absorb nutrients" through open source communities.

He said the company's Welink business communication platform had relied on traditional software licensing, which was unsuited to cloud computing and inferior to a rival product from tech giant Alibaba.

Given the difficulty of working in the United States, Ren's note said the company should strengthen its position at home and build up its territory with a view to possibly excluding the United States.

"Once we dominate Europe, the Asia Pacific and Africa, if U.S. standards don't match ours, and we can't enter the U.S., then the U.S. can't enter our territory," it said.

Ren's note confirms a direction implied by previous announcements from the company that hinted at a shift away from handset hardware.

Rotating chairman Eric Xu in April said the company would invest more than $1 billion this year in its intelligent driving business.

It is also expanding its smart car partnership with state-owned Chongqing Changan Automobile Co Ltd to include the design and development of auto-use semiconductors, sources told Reuters earlier this month.

Apart from the pressure of sanctions, Huawei is known for its gruelling work culture and the note recommended the software teams should hire psychology professionals to help young recruits who might find the company emotionally challenging.

"Now some young people have high IQs, but their EQ might be low, and their mentality is not mature, and it's easy for them to get sick," Ren said.

($1 = 6.4270 Chinese yuan renminbi) (Reporting by David Kirton Editing by David Goodman and Barbara Lewis)


© Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
ALIBABA GROUP HOLDING LIMITED -0.47% 157.0841 Delayed Quote.-32.17%
ALPHABET INC. -0.56% 2872.5 Delayed Quote.64.81%
CHONGQING CHANGAN AUTOMOBILE COMPANY LIMITED -3.63% 4.78 End-of-day quote.-15.93%
DOW JONES AFRICA TITANS 50 INDEX -1.62% 511.93 Delayed Quote.-1.59%
S&P AFRICA 40 INDEX -2.31% 168.11 Delayed Quote.-0.51%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) 0.41% 6.4506 Delayed Quote.-1.09%
WISDOMTREE CLOUD COMPUTING UCITS ETF - ACC - USD 1.33% 59.625 Delayed Quote.10.57%
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Financials (USD)
Sales 2021 250 B - -
Net income 2021 68 645 M - -
Net cash 2021 140 B - -
P/E ratio 2021 28,6x
Yield 2021 -
Capitalization 1 931 B 1 931 B -
EV / Sales 2021 7,15x
EV / Sales 2022 6,03x
Nbr of Employees 144 056
Free-Float 93,1%
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Number of Analysts 45
Last Close Price 2 888,59 $
Average target price 3 197,00 $
Spread / Average Target 10,7%
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Managers and Directors
Sundar Pichai Chief Executive Officer & Director
Ruth M. Porat Chief Financial Officer & Senior Vice President
John LeRoy Hennessy Chairman
Louis John Doerr Independent Director
Ann Mather Independent Director
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