5G in China
Huawei reinvents itself via 5G-enabled digitalized services to modernize the backbone of China’s industrial sectors
In northern China sits Tianjin port’s “Smart Hub” – a fully digitalized and automated wharf where quay cranes, gantry cranes, stackers and forklifts are all controlled by a command center miles away. Powered by Huawei Technologies’ 5G telecommunications infrastructure, the smart port can move 36 20-foot equivalent units (TEU) per hour, much faster than humans.
“Digitalization is the industry trend, a direction not just for Chinese ports, but for all global ports,” Yang Jiemin, vice- president of Tianjin Port (Group), said during a recent visit by the South China Morning Post. “Our goal is to build a digital twin to Tianjin port in the next three to five years,” he added. The benefits of automation are clear. A staff of 200 operators and engineers can manage 1 million TEU in annual throughput at Tianjin port’s Terminal C, about 25 per cent of the employees needed in a typical year during its pre-digital age. The future has more in store: artificial intelligence (AI) for predicting congestion, big data analysis for parsing traffic trends and driverless trucks – all made possible by the ultra-fast exchange of data in 5G networks.
Shenzhen-based Huawei, with 195,000 employees in 2021 and one of the world’s largest research budgets, surpassing even that of Google and Microsoft, is now promoting the advantages of 5G-enabled digitalized services to modernize the backbone of China’s industrial production in coal mines, ports and even hospitals.
As U.S. sanctions tightened around Huawei’s access to critical technology, the firm’s smartphone business, which beat Apple to become the world’s second-biggest smartphone maker in 2018, came under tremendous pressure. Deprived of Google’s Android operating system and short of vital components, it sold its Honor budget smartphone business in 2020, the biggest driver behind its spectacular success. Huawei then pivoted back to its mainstay enterprise business, opening up new data-heavy products and services for customers to increase their usage and dependence on its 5G infrastructure.
The company established “legions” to spearhead the effort, a nod to the military parlance much liked by founder Ren Zhengfei, who served in the People’s Liberation Army. These cross-departmental business units were established to help clients digitally transform their products and services in mining, customs clearance and ports, energy savings at data centres, smart highways and the photovoltaic industry.
Last June, Huawei added five legions, bringing the total to 20. While it has not disclosed details about each legion, the chief executive of its airport and road legion, Li Junfeng, said the company was hopeful about the digitalization of transport.
“Airports and roads are also key infrastructure and it is difficult to expand in the overseas market. So we do not have plans for global expansion in the short term, but we will make some changes next year,” Li said in November, according to the state-owned Securities Times financial newspaper.
For Huawei, hopes are high that such industrial infrastructure can turn into a source of steady revenue – at least domestically – although the firm has declined to divulge the financial details of its showcase applications.
Huawei’s efforts to forge deeper ties with traditional industries build on its past work with the world’s private enterprises, leveraging its 5G connectivity and computing power to automate and upgrade various verticals, says Matthew Ball, chief analyst at research firm Canalys.
“Overall, this is an extension of what Huawei has done for years, even before the US sanctions, particularly its enterprise business, which had a strong vertical focus on delivering solutions across its portfolio,” Ball said.
“It’s just that its smartphone business has received more headlines.”
The jury is still out on whether Huawei can survive US sanctions, especially given Western reluctance to allow it future access to potentially sensitive data and network infrastructure contracts on national security grounds. The company has already undergone huge change since Trump added it to a trade blacklist in May 2019, barring it from doing businesses with US partners without special permits.
Huawei’s rotating chairman, Eric Xu, said in a new year’s message that the company had exited “crisis mode” and was ready to go “back to business as usual” in 2023. The bleeding has been staunched after it reported preliminary revenue of 636.9 billion yuan (HK$736.3 billion) for 2022, little changed from the previous year.
The pressure remained on Huawei even after Trump lost his re-election bid. Reports emerged last month that Joe Biden’s administration was considering cutting off Huawei from all its US suppliers, including Intel and Qualcomm, which produce the semiconductors critical to the company’s telecoms gear.
Huawei has been reporting its annual results since 2000 even if it is not subject to public disclosure regulations, a practice from bidding for tender contracts in public telecoms networks.
The share of China revenue in its overall business has increased from about half in 2018 to around two-thirds in 2021 due to a retreat from almost all overseas markets, including the Asia-Pacific, the Americas and Europe, the Middle East and Africa, according to its results.
Its consumer business, mainly smartphones and devices, has been hobbled by a lack of access to advanced chips.
At one point, Huawei briefly surpassed Apple and Samsung Electronics to become the world’s biggest handset vendor, but it is now out of the top five. By the third quarter of 2022, it finally ran out of less advanced in-house- designed semiconductors for its handsets.
Huawei’s carrier unit, once its bread-and-butter business of selling telecoms gear, has slipped as China’s telecoms operators gradually complete network upgrades. In 2021, its carrier business revenue was 40 per cent lower than in 2019 when China began 5G infrastructure installation.
That leaves enterprise as the only segment with growth, notching up a 2.1 per cent revenue increase in 2022, although its contribution was still less than one-sixth of total sales.
At the beginning of 2021, Huawei founder Ren told employees the company must make cloud computing its priority, and personally endorsed the firm’s partnership with coal mines.
The company is developing customized 5G mobile base stations for the mining industry that are resistant to dust, dampness and even shock waves from explosions. These devices are expected to support stable and fast upload of real-time data from unstaffed machinery, sensors and high-definition cameras, which would help China’s most dangerous industry cut back on the number of people working in the pits. The mining industry would be the first to use the model where scientists and experts from different corporate departments could come together to find solutions to specific industry problems, Ren said in 2021 in the Shanxi provincial capital of Taiyuan.
Enhancing end-to-end user experience, real-time processing of massive data and the operation, maintenance and management of complex networks would all become challenges for the financial industry in the future, according to a June speech by Cao Chong, the head of Huawei’s digital finance legion, the Securities Times reported.
Huawei has also made a foray into the electric-vehicle sector, with the high-profile launch of Aito cars, a brand launched jointly with Chinese electric-car maker Seres. However, competition is cutthroat in China, and Huawei ranked only sixth among the country’s electric-vehicle start-ups with a total of 76,180 units by the end of 2022. The company has also forged ties with a series of carmakers offering smart car components.
The change in Huawei’s business is visible to consumers. On the ground floor of its Shenzhen flagship store, a three-storey building with a huge glass facade, customers approached a row of Aito cars during a recent visit, asking sales representatives about vehicle specifications and available discounts. At the other end of the showroom, Huawei’s latest smartphones and tablets were on display on long wooden tables. While analysts are generally sanguine on Huawei’s new enterprise business moves, the digitalization push is not expected to result in a short-term revolution.
“The enterprise business should be able to generate rapid growth in the next five to 10 years,” said Ivan Lam, a senior analyst at Counterpoint Research. But the threat of US sanctions remains the biggest obstacle for Huawei, according to Lam, especially for products that require advanced computing power such as smartphones, servers and car components.
“Huawei has never treated existing sanctions as the last, and it has been preparing for new restrictions in various ways, such as adoption of domestic technologies. We expect Huawei to reap the benefits of these efforts in coming years and close the gap in key technologies,” ” Lam said.
Separately, the South China Morning Post reported that Huawei Technologies Co chief financial officer Meng Wanzhou, daughter of company founder and chief executive Ren Zhengfei, is expected to take her turn as “rotating chairwoman” in the company from April, according to local media reports, signalling that a succession plan looks to be in place at the struggling Chinese telecommunications giant.
It would mark the first time that Meng, 50, has assumed the role since she was added as one of three rotating chairmen at Huawei in March last year, alongside Eric Xu Zhijun and Ken Hu Houkun. Xu’s current acting chairman term started on October 1 last year and will conclude on March 31.
During her six-month turn as the company’s top leader, Meng, who also serves as deputy chairwoman at Huawei, will head the company’s board of directors and its executive committee.
Meng was hailed as a national hero upon her return to China in a chartered flight in September 2021, following nearly three years under house arrest in Canada where she fought extradition to the US over a bank fraud case. Under a deal reached with US prosecutors, that case and other charges against Meng were dismissed last December.