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CNBC Transcript: Ren Zhengfei, Founder & CEO, Huawei

Below is the transcript of a CNBC exclusive interview with Huawei Founder & CEO, Ren Zhengfei. The interview will play out in CNBC's latest episode of Managing Asia on 4 October 2019, 5.30PM SG/HK (in APAC) and 11.00PM BST time (in EMEA). If you choose to use anything, please attribute to CNBC and Christine Tan.

Christine Tan: It has been 6 months since Huawei was put on the U.S. entity list. It was May 16th. Do you remember the day it happened? What was the first thing that went through your mind? Were you angry? Were you disappointed?

Ren Zhengfei: When I heard that the U.S. had put us on the entity list, I wasn't very surprised because we were mentally prepared. When they had just started cracking down on us, we estimated our sales would drop sharply, but I did not believe it will endanger our survival. One to two months later, during an interview, I said that our estimated drop in revenue might be around US$30 billion. That estimation was made based on our sales plan for this year, not the revenue for last year. As time goes by, we are fully confident that this drop won't exceed US$10 billion, compared with our plan for this year. The impact on us will be much smaller than expected.

Christine: You actually put out a memo that said the company was facing a "live or die" moment. As CEO, what was the first thing you did to manage the crisis at Huawei?

Ren: First of all, this incident was not a surprise to any of our senior management. We are all of one mind. We need to change our employees' mindset, as we are not in peace time anymore. We need to switch. For more than 30 years, our employees have been very well off, which is another way to say slacking off. We must take this opportunity to prevent our employees from slacking off. Secondly, during peace time, our products were advanced and superior, which allowed many mediocre employees to move into managerial positions. These employees were eloquent and knew how to flatter their bosses. So other employees might feel that they were promoted without being tested in the field. For this reason, we need to remove these mediocre managers. This is the idea in my mind. This idea will be made public, which will sound an alarm to our employees. This way, some of these employees may correct their behavior, choose to resign or retire. This will allow the company to weed out mediocrity. Within three to five years, we will see vitality among our employees.

Christine: Were you happy in the way your employees came together, galvanize together to really shore up innovation within the company?

Ren: Definitely. We are now more united and aligned than before, thanks to these external pressures. Meng Wanzhou has written a letter to me, saying that the pressure from outside has only made us more united than ever before. This is how we motivate our employees. Today, our employees work far more efficiently.

Christine: Looking at the last 6 months. What were some of the painful lessons learnt for you and Huawei?

Ren: I can summarize the painful lesson in one sentence: We must not slack off or allow mediocrity, and we must remain dedicated and inspire passion throughout the organization.

Christine: The U.S. has granted a temporary reprieve to allow Huawei to continue buying components from the U.S. To what extent have you been able to resume the supply of components from the U.S.?

Ren: The U.S. government didn't approve a single request for license during the first 90-day reprieve. When they extended the license validity by another 90 days, they added over 60 of our affiliates that they had initially overlooked, to the Entity List. They've actually increased their sanctions on us, rather than being more lenient.

Christine: According to a memo you put out, the company will be undergoing restructuring, giving more power to the frontline, cutting down inefficiencies. And in August, you launched your own operating system - Hongmeng OS and now, you've developed your own advanced chipset called the Ascend 910. How much progress have you made to drive Huawei to become more self-reliant?

Ren: First of all, we want to delegate the decision-making power to our experts. The last thing we want is to have bureaucrats or managers lead our way in technology. So we've decided that our managers should do administrative affairs, and leave technology-related decisions to experts. The Hongmeng OS (also called Harmony) was originally designed for IoT. Whether it would be able to support the future development of Huawei, the key is not the operating system itself. Creating an operating system is relatively simple. The critical factor is establishing an ecosystem, and this requires the cooperation of tens of thousands of companies. This is very complicated and needs a long time to develop.

Christine: Let's talk about creating that eco-system that you talked about - the Hongmeng operating system which I understand it can be used across different devices, but no plans yet to use on smartphones. Do you think Hongmeng has the potential to replace Google's Android should you choose to develop it as an alternative operating system for your smartphone business?

Ren: We won't replace Android operating system, because we support the development of Android. Google is a very good company and we want to enhance cooperation with them. If Hongmeng gets to develop its eco system, it would be a good complement instead of a replacement.

Christine: I understand you want to want to maintain your relationship with Google but does Hongmeng OS have the potential to replace Android Google if you choose to develop it further as an alternative mobile operating system?

Ren: First of all, we want to strengthen our partnership with Google, and Google wants that too. The only problem is if the U.S. government won't approve it. Whether we have the approval depends on what happens on Nov 19th. We hope that the U.S. will approve our continued friendly cooperation with Android. I'm sure it's not about capability, as we are definitely capable of achieving what we want to do.

Christine: For now, you've gone ahead anyway and you've launched your latest handset the Mate 30 even though it doesn't have a full suite of Google apps. Why do it? Why launch a new handset in the midst of all this uncertainty?

Ren: For the Mate 30, it has a lot of functions that would attract many customers. Whether people could accept our product without the pre-installed Android system, I need to test. They expect the number of Mate 30s sold to be around 20 million sets. Let's wait and see if people are actually willing to pay for our Mate 30 without the full Android system, whether people can still accept us.

Christine: Just out of curiosity, did you bother to test Hongmeng on Mate 30?

Ren: Not for now.

Christine: Huawei is a leader in 5G. We know that China is rolling out 5G using your technology. Australia and Japan have opted out. How many 5G contracts have you managed to secure outside of China for Huawei?

Ren: It should be more than 50 5G contracts. Contracts outside of China account for around two thirds of that.

Christine: You say you're open to licensing all of your 5G technology to western firms for a one-off fee. You've put this proposal out there? So far, any interest?

Ren: This is a big decision to make, it's nothing simple. No big company has approached us yet. Most of the responses came from companies who want to serve as middleman. We haven't been approached by any company who has a genuine interest in this.

Christine: Any interest from the U.S.?

Ren: Some have asked for more details.

Christine: What would the package look like? Specifically, how would you license out your technology? I'm curious -- hardware, software, source codes, how exactly would it take place and what are you willing to sell?

Ren: Everything, even chipsets. Whatever you want to buy, we can discuss. We provide everything without reservation. We won't hide some source codes. They can have everything, and they can improve on the basis of our work.

Christine: Licensing your core 5G technology possibly open up the possibility of another competitor in this space. Are you willing to accept about the possibility that you might lose your leadership position in 5G? Is this something you can accept?

Ren: It's possible that having a strong competitor would encourage us to compete better.

Christine: I've been talking to your engineers in Dongguan, they say work has already begun on the next generation 6G. What sort of progress have you made in 6G development? What sort of investment are you throwing in?

Ren: We started work on 6G three to five years ago; we didn't just start it. I don't know the exact amount, but we are generous in our investment.

Christine: But do you have the confidence that Huawei will lead in 6G as well?

Ren: Yes.

Christine: Trade talks are still ongoing between China and the U.S. Huawei has been used as a bargaining chip. I read somewhere that you don't want China to make concessions on your behalf. Why put the future of Huawei and possibly that of your Daughter on the line, more than you have to?

Ren: Perhaps the U.S. believes this will serve them better in negotiations or talks. But we don't want to sacrifice national interest for ourselves. National interest is about the poor and their products. We are already well-off. We cannot ask the poor people to save us. So, we think we should just withstand these blows from the U.S. And we will resort to legal means to resolve this problem.

Christine: Are you watching the impeachment process that Donald Trump is facing in the U.S.? Do you think this will complicate matters for Huawei in the U.S.?

Ren: I haven't paid attention to Trump's impeachment inquiry. I think Trump is quite a good President. He didn't lead the U.S. to a tougher situation. What's not good about that?

Christine: To what extent could that have implications on Huawei's position in the U.S.? Will it change the U.S.'s position on Huawei?

Ren: We don't have any kind of status in the U.S. and we don't plan to. So we're not interested in whether he's re-elected or not. This has nothing to do with us.

Christine: Do you think if he does face an impeachment process and if it does go through, a democratic government under Joe Biden or Elizabeth Warren would open the doors for Huawei to be removed from the Entity List?

Ren: You think that's possible? I don't think so. Who would speak up for Huawei? No one.

Christine: So, you think Huawei will stay on the blacklist for some time?

Ren: Yes, I believe so.

Christine: Is that your expectation?

Ren: My expectation, yes.

Christine: You're not hopeful at all that it'd be removed from the blacklist?

Ren: Yes, there isn't much hope.

Christine: So, that's the scenario you're going with? That's the assumption you're operating on -- that you'd continue to stay on the blacklist and you'd continue to operate as you continue to take steps to survive the crisis you're in?

Ren: We want to remain open minded, and keep pursuing economic globalization. Even if we are not taken out of the entity list, for some American companies, the things they sell are not important. Why can't they sell them? Only a very small portion of U.S. products are related to security. If you prevent all companies from selling to foreign countries, this is not beneficial to the U.S. Should the ban be lifted one day, we would still buy from these companies.

Christine: Let's talk about your daughter. She's under house arrest in Canada. A hearing is now going on about the legality of her arrest in Vancouver. Are you hopeful she will be acquitted soon?

Ren: We need to wait for the court decision in Canada, I don't know what decision they will reach.

Christine: Have you spoken to her recently? How is she holding up?

Ren: We made some phone calls. We chatted and I listened to her -- what she thinks, the books she read, the TV shows she watched, even going out for hotpot. I only hope that she can relax and be prepared for the long run. Nothing much else.

Christine: Is she anything like you in terms of resilience & resolve?

Ren: I feel that none of my three children resembles me. None of them liked me or talked to me much. In the past, they didn't talk to me at all. Now, it's slightly better. We have some communication, but still very little. The reason is, when they were little, I devoted my time to work. I never took care of them or played with them. So we didn't have much emotional connection. Perhaps that's why they are independent and strong. When you're more independent, you rely less on your parents. So, my children don't talk to me much, not just Meng Wanzhou.

Christine: But looking at what she's going through right now, has it brought the two of you closer as a result?

Ren: This might have helped to bring us closer. If she comes back one day, we can sit down regularly to have meals. She can feel she's needed and the warmth of the family. It has helped, yes.

Christine: Mr Ren, could you tell me to what extent has the crisis at Huawei accelerated the innovation process within the company?

Ren: After this crisis happened, we are marching faster along the road of innovation. When hiring, we pay more attention to scientists and young talents. So, we are much more capable to develop new products than in the past. Not only will we make up for the loss created by the U.S. and continue with our production, but we will also update ourselves in technological development. These should happen at the same time.

Christine: You often refer Huawei to a broken airplane. What would Huawei look like three to five years from now?

Ren: Within two years, our plane will be completely repaired. In three years, you will see a new plane. It would probably have more advanced engines to fly faster. I think the whole restructuring within the organization should be completed within three to five years. We would have a higher level of efficiency by then. Our ability to develop products and world-leading technology would be significantly enhanced. For our whole service system, our projects around the world, and our manufacturing system, the use of AI would increase dramatically. We should say the plane would become stronger.

Christine: Will it fly faster than any other plane in the world?

Ren: Should be. It should be.

Christine: As CEO, you're working hard at this critical moment to lead the company out of crisis. At the same time, there are many who question whether Huawei cannot survive. What would you say to the skeptics out there?

Ren: I've said nothing. We've been working hard on manufacturing. Not sure if you have visited our Columbus and Galileo Galleries, there are no components there from the U.S. anymore. It means that we are efficient, and our clients have faith in us. Our clients, who are still buying from us despite the pressure, give us confidence. I don't need to explain ourselves to the whole world. That's too much. It's impossible for everyone out there to agree with us. So, it's natural that some people or some countries don't agree with us. It's only natural.

Christine: What will Huawei look like three, five, ten years from now after the crisis?

Ren: I think it will be like what it was 30 years ago. 30 years ago, we had nothing but our strength and enthusiasm. We were full of energy. Of course, by that time, I will be old and not capable enough, but the new blood coming in will provide the strength. On top of that, the technology platform and the strong cash flow that we enjoy now are much better than what we had. So, we have a higher starting point now, and would probably be able to achieve more and provide greater contributions to human kind.

Christine: You said before you're getting old, what are you doing about succession within the company?

Ren: In fact, we've started to plan for succession more than 10 years ago. Back then, we had eight people taking turns to manage the company. Based on their performance, we chose three who became rotating CEOs. We have formed several managing structures. The managing board of directors is mainly in charge of business operations, including the appointment and dismissal of mid- to high-level managers. We will have in the future a core elite team to take charge of choosing members of the board and the high-level managers - through the board of supervisors as the team is not a legal body. It will look for candidates through the board of supervisors. This idea comes from the management theory of Fredmund Malik, the Malik theory of the E.U. So in this way the circle would be formed. Our Chairmen will lead the shareholding employees' representatives to restrict the board and the board of supervisors. As this balance is achieved, the company has in fact completed the mechanism of succession. Leaders will join the mechanism and take their turn, Succession wouldn't be a problem.

Christine: Will you be able to let go completely?

Ren: I have let go completely already. I am actually a puppet now. I don't have much actual work to do these years, so our PR department says, "Come work for us." So, I'm meeting journalists full time for them now.

Christine: And finally, Mr. Ren, I would like to ask you one last question. You are a visionary. You built Huawei into the largest telecommunications equipment manufacturer and the second largest manufacturer when it comes to smart phones. How would you describe your leadership and your management style?

Ren: My management style is characterized by compromise. I'm not a demanding person who insists that all things be done according to my instructions. I speak my mind. If anyone objects to it, I am open to revising my ideas. After the revision, they'll need to be put into practice. This process is defined by compromise. It's not a time to stubbornly cling to my own viewpoint. Because there are many aspects of technology, management, and finance that I don't understand, I need to listen to everyone's views and integrate them into my decision making. So the decisions we implement are the result of compromise between many parties.

Christine: So what drives you? What motivates you? What keeps you going?

Ren: On compromise, I actually am compromising with the U.S. I'm actually pro-American. I had requested my company not to mass produce many of our advanced technologies, but produce them on a small scale. However, after we were added to the Entity List, I didn't suppress those technologies anymore, so our 5G standalone network, Atlas computing platform, Ascend chips, and TaiShan servers all came out. That is not an accident. It is because I used to suppress them in the past, and didn't allow them to come out. But in fact, they have been in the works for more than 10 years. Compromise inside the company makes us united, and compromise with the outside world creates a favorable environment. Why did we not panic when we were added to the Entity List? Because we were fully prepared since a long time ago. We could just switch to our own products. Of course, we have to undergo a run-in period. But I don't worry much about whether the company can survive or operate smoothly.

Christine: Have you ever thought about the legacy you want to leave behind?

Ren: I don't need to leave anything behind. When people are gone, they become dust. So there's nothing to leave behind.

Christine: How do you want to be remembered?

Ren: I hope people will forget me. It is a waste to remember me. I hope they can stop thinking about me. If they remember me and turn this into a game to see who is more loyal, that will turn into a burden. They can look into the sky when they remember me. I don't want them to think about me and it is too tiring for them to remember me.

Christine: Mr Ren, thank you so much for talking to me on Managing Asia.

Ren: Thank you. Thank you.

END

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