Since Huawei was placed on the U.S. government’s list of entities on May 16, concerns about how huawei will address supply chain and public trust issues have been vague. Recently, the U.S. government twice granted U.S. suppliers a grace period to continue selling products and services to Huawei. How is Huawei dealing with this series of political events? What impact does Huawei think the physical inventory will have on the global communications industry? How will Huawei’s tire preparation plan address these problems?
In a recent interview with Light Reading reporter Phil Harvey, Joy Tan, Senior Vice President of Public Affairs, described recent advances in Huawei’s global operations, discussed supply chain-related concerns, and explained how Huawei addressed carrier cyber security issues.
The following is a transcript of the conversation (excerpt)
Phil: I’m in Plano, Texas, and I’m talking to Joy Tan from Huawei today. Joy, according to our report, the U.S. and China are now engaged in a trade war, and Huawei seems to be caught up in it. On May 16, Huawei was added to the U.S. government’s list of entities. Since then, the U.S. government has twice granted U.S. suppliers a grace period to sell equipment, products and services to Huawei. How do these events affect China?
Joy: Huawei’s business continues to grow. In fact, in the first three quarters of this year, we did very well financially. Revenue increased by 24% year-on-year. In contrast to U.S. companies, Huawei’s inclusion in the list of entities has taken its toll. Companies such as Micron, Synaptics and Skyworks Solutions lost $435 million in the second quarter, according to Light Reading. This is just the tip of the iceberg among our U.S. suppliers. Huawei buys $11 billion of products and services a year from U.S. companies, which is equivalent to about 50,000 jobs in the U.S.
Phil: Does the inclusion of Huawei on the list of entities inhibit innovation?
Joy: Reducing choice in any market, especially technology, slows down the pace of innovation and increases the cost of innovation. In 1984, the U.S. government broke the monopoly of AT?amp;T in the telecommunications industry, encouraging competition and ushering in a flood of innovation in the telecommunications industry. But now, the U.S. government is preventing private companies from freely choosing partners. This runs counter to the idea of open innovation and competition that the United States has always encouraged, and it will affect everyone.
Phil: What impact do you think Huawei’s inclusion on the list of entities will have on the industry as a whole?
Joy: I think it’s also having an impact on network security. Today, almost all device manufacturers rely on global supply chains, and everyone faces a variety of security risks. The exclusion of individual suppliers based on the host country does not guarantee the security of the United States network. In fact, this can be counterproductive and make cyberspace more vulnerable, as it reduces the willingness of other suppliers to comply with industry standards and increases exposure due to single points of failure.
Phil: The U.S. Federal Communications Commission is pushing a ban on U.S. government-funded telecommunications programs buying equipment from two Chinese manufacturers, Huawei and ZTE. How did you respond to this?
Joy: The U.S. government has yet to produce any evidence that Huawei’s technology poses a security threat. These boycotts of Huawei simply do not solve the really important problem of securing America’s network infrastructure. The U.S. government should protect cybersecurity in a comprehensive and transparent manner. The most effective way to secure your network infrastructure is to establish risk-based testing standards. If the problem is cybersecurity, the U.S. needs to test all vendors and ask everyone with the same set of testing standards. The FCC’s proposal would have a huge impact on people in rural America. Telecommunications services are undersupplied in these areas, and many locals rely on Huawei’s basic connectivity services.
Phil: Huawei may lose its U.S. supplier. One of Huawei’s measures in response is to have developed its own Harmony OS. Can you talk about the strategy behind Harmony OS?
Joy: Harmony OS is a distributed, lightweight, compact operating system with powerful capabilities. It has far fewer lines of code than other operating systems on the market, so it is more secure. Harmony OS has a different purpose than Android and iOS. We build a more integrated shared ecosystem through Harmony OS. Developers only need to do one app development, and the app can be flexibly deployed to multiple different endpoints. This is great for developers and consumers. Harmony OS will be the first to be used in smart devices such as smart speakers, smartwatches and in-car systems. If necessary, it could also replace the Android operating system on a smartphone. Harmony OS is off to a good start. We just released Harmony a few months ago, and now we have market research firm Counterpoint Research reporting that Harmony OS is expected to overtake Linux as the fifth most popular smart digital terminal operating system by the end of 2020.
Phil: So what about the Android operating system, and is Huawei still committed to using Android?
Joy: Absolutely. Huawei is committed to using the Android operating system now and in the future. We have grown with Android, and we have contributed a lot to the development of Android. We love Android, and so do consumers. We developed Harmony OS for cross-platform use. Harmony can also expand support for smartphones, but we prefer the Android operating system and Google’s GMS app Ecosystem to serve consumers.
Phil: Another u.S. pressure on China and Huawei is that several U.S. universities that have previously worked with Huawei have stopped working with Huawei. What’s your response to this?
Joy: Business and universities are working together in both directions. Companies such as Huawei can help universities commercialize their research more quickly, and university professors can gain insight into action, understand the business challenges and real-world scenarios that need to be solved, and explore the most pragmatic research directions. However, we are concerned that the ICT industry will soon face development bottlenecks. With the development of 5G, we will soon approach the theoretical limit of Shannon’s theorem, the upper limit of reliable data transfer rate. This is a tricky physical limit. Over the past few decades, we have made a lot of progress in technological innovation. In the next round of development, we need to make more breakthroughs in basic theory.
Phil: How to make a fundamental theoretical breakthrough?
Joy: Universities are the driving force behind theoretical breakthroughs, and engineering and technology breakthroughs are often the result of joint efforts by universities and technology companies. Polarization codes speak for it. After 20 years of research, Dr. Erdal Arikan, a Turkish professor, proposed the polarization code in 2008. This is a new type of error correction code that supports ultra-high-speed data transfer while ensuring that data is not corrupted. So there was a theoretical breakthrough in 2008, but it was trapped in the lab. Huawei sees the potential of Dr. Arikan’s research and invests significant research resources to help him continue to deepen his research. In 2016, polarization codes were incorporated into the 5G open standard. This shows that we need to continue to conduct cross-border academic research and promote the prosperity of research cooperation. Universities need transnational academic research, industry needs transnational academic research, which is also the source of theoretical breakthrough.
Phil: How much does Huawei invest in university cooperation each year? How does Huawei want to get a return on these investments?
Joy: Every year, Huawei invests about $300 million in university cooperation. At present, we work with about 300 universities around the world in many ways. Huawei funds universities, but we don’t have any strings attached to funding professors for research or innovation.
The result could be a professor’s published paper or an exploratory discovery. Huawei does not make any claims or interests in the results of their work. In addition, Huawei has worked with universities to develop specific technologies of mutual interest. Before the project begins, we will agree on all intellectual property rights and benefits that will be shared by one or both parties in the future. This is the standard practice in the industry.
As many university presidents have said, patents generated by universities have no real market value unless they are commercially available. As a result, Huawei and the university are working together to transform patents and technologies into commercial assets that contribute to society. We will continue to work with universities to support basic scientific research. We believe that is the best way to prepare for the future and ensure that technology is inclusive of the public.
Phil: Do you think it’s a technological cold war? What long-term effects do you think the technological cold war will have?
Joy: I certainly hope not. My reasons are as follows: Since the introduction of the 1G system in the late 1970s, the telecommunications industry has developed rapidly, the market has been open and developed, and the industry has gone hand in hand towards the common standard. From 3G to 4G, we see the number of standards changed from four to two. As a result, the pace of our industry has become more consistent and the development trend has been better.
With 5G, for the first time, we have a globally uniform standard. It’s a great event. Standardization accelerates innovation, reduces costs, helps integrate all types of digital technologies, and delivers greater value.
In the face of the “cold war” attitude of digital technology, a country that is not credible, the company is not. What really worries us is the potential to revert to a time when systems were not connected. But if the United States decides to break away from the world and close itself, innovation could slow even if the ecosystem is not completely incompatible.
Phil: So it’s clear that, as has been the case with past standards, global supply chains are interconnected, do you think there’s a risk of a global supply chain being fragmented?
Joy: I don’t think anyone can disrupt the global supply chain right now. The technology industries of each country are highly relevant to each other, not only in China and the United States, but also globally. No one can break away from global joint innovation activities or develop key components at home on their own. It’s too expensive, it’s unrealistic, and it can fall behind others. China’s market access has stimulated innovation by U.S. companies. America’s leading semiconductor companies have made huge profits in China and then reinvested the money in research and development to continue to innovate and remain competitive. Innovation goes both ways. The number of Chinese science and engineering graduates is the highest in the world. China is moving from a manufacturing economy to an innovative one. The U.S. can also benefit from Chinese talent and new ideas, just as it can benefit from working with other countries.
Phil: From Huawei’s third-quarter operating results, Huawei has achieved an impressive year-on-year increase despite intense pressure, including political pressure. Why do you think Huawei can achieve this growth?
Joy: Huawei’s revenue in the first three quarters was up 24% year-on-year, while profit spree increased 8.7% year-on-year. It’s a remarkable achievement. We have signed 60 5G commercial contracts worldwide and more than 400,000 5G Massive MIMO antennas have been shipped. Our consumer business also performed well, achieving a milestone of 200 million smartphone shipments 64 days ahead of 2018 this year.
While Huawei is under intense pressure from the U.S. government, we continue to seek alternative solutions to address these challenges. We invest heavily in research and development activities. We are focused not only on our products, but also on finding end-to-end supply chain solutions.
Phil: According to the market research I’ve seen, Huawei is a 5G leader in terms of shipments, base station deployments, and bringing technology to market. Is Huawei planning to grant 5G licenses to U.S. companies, or has it already started?
Joy: Recently, Huawei founder Ren Zhengfei offered to grant a license to a U.S. company for full stack 5G technology. Mr. Ren believes that the U.S. can really benefit the major local telecommunications equipment providers that have received 5G licenses from Huawei. Increased competition is also beneficial to the telecommunications industry, helping to lower prices and stimulate innovation, as well as creating more jobs in the U.S. telecommunications and manufacturing industries. So it’s a great proposition to license Huawei’s 5G technology to U.S. companies.
Phil: We discussed the pipeline of innovation, some geopolitical topics, and most importantly, the direction of 5G. Joy, thank you for your interview and shared Huawei’s views on these issues.
Joy: Thank you, Phil!