Author | Qiang Zhang (Ph.D. in Microelectronic Optics, Shanghai)
Source | Blue Blood Study (Lanxueyanjiu)
Huawei's 2021 annual report shows that HiSilicon has officially become a business sequence, evolving from a refueling truck, stretcher team, and bridge team to a main combat unit. HiSilicon is positioned in providing end-to-end board-level chip and module solutions such as perception, connection, computing, and display for intelligent terminals, display panels, home appliances, automotive electronics and other industries, undertaking R&D, Marketing, ecological development, sales and service responsibilities for the chip and module industry, and being responsible for business results, risks, market competitiveness and customer satisfaction.
- Blue Blood Inscription
On the afternoon of March 28, Huawei held the 2021 annual report (Note: hereinafter referred to as Huawei's 2021 annual report) press conference at its headquarters in Shenzhen: In 2021, Huawei achieved global sales revenue of 636.8 billion yuan, down 28.6% year-on-year, net profit of 113.7 billion yuan, an increase of 75.9% year-on-year, and operating cash of 59.7 billion yuan, an increase of 69.4% year-on-year.
As a human resource management worker who has been paying attention to Huawei's development, the author tries to interpret Huawei's 2021 annual report from three perspectives: overall operating conditions, equity structure evolution, and business structure changes.
01
Overall operating conditions
Huawei has always pursued sustained and effective growth, emphasizing more grain and enhancing land fertility: "grain" refers not only to sales revenue, but also to profits and cash flow, that is, profitable income and cash flow profits; increasing land fertility is to spend more money on scientific research and future investment.
Guo Ping, rotating chairman of Huawei, said: In 2021, Huawei's financial stability, operational efficiency, and healthy business development have actually shown three major characteristics: declining sales revenue, net profit growth, and operating cash growth.
"In 2021, the company's overall operating conditions are in line with expectations and financially sound. The company achieved sales revenue of RMB 636.8 billion, stable performance of operator business, steady growth of enterprise business, and rapid development of new industries in terminal business.
Realized profit of RMB113.7 billion, net profit margin of 17.9%, operating cash flow increased by 69.4%, cash stock is sufficient, asset-liability ratio decreased from 62.3% to 57.8%, and the capital structure was further improved. Through simplifying management and making full use of digital technology, the company continued to improve its internal operational efficiency, and reduced sales and management expenses by RMB 9.3 billion year-on-year.
The more difficult the period, the more attention is paid to the investment in the future. In 2021, we increased our R&D investment, with R&D expenses of RMB142.7 billion, accounting for 22.4% of sales revenue, and the amount of R&D expenses and expense ratios were at the highest level in the past decade. At present, Huawei's R&D investment ranks second among global enterprises. (February 28, 2022, Huawei's 2021 Annual Report: Speech by rotating chairman)
CAGR: Annually in line with the growth rate
1). Sales revenue declined
In 2021, Huawei's sales revenue was 636.8 billion yuan, down 28.6% year-on-year from 891.4 billion in 2020, while Huawei has been in a state of rapid growth since its establishment in 1987, and only in 2002, Huawei's winter sales revenue fell by 11.6% year-on-year.
(Note: Huawei was incorporated in September 1987, and has a record of sales revenue since 1988, and the year-on-year growth rate of sales revenue can be calculated since 1989.) ）
In response to the decline in sales revenue in 2021, Huawei gave three reasons and proposed corresponding coping strategies.
Reason 1: In the past three years, Huawei has continued to be under pressure on the continuity of supply, and multiple rounds of sanctions by the United States have greatly affected Huawei's consumer business such as mobile phones, and sales revenue has dropped from 482.9 billion yuan in 2020 to 243.4 billion yuan in 2021, a year-on-year decrease of 49.6%.
Response:
In response to the shortage of high-end mobile phone chips and Google's cut off of GMS services: Huawei insists on increasing system investment when the chip single-point technology encounters difficulties, and tries to promote the improvement of system capabilities through the continuous improvement of components and frameworks; and strives to build an HMS ecosystem based on Hongmeng, by the end of 2021, the number of Huawei devices equipped with Hongmeng operating system has exceeded 220 million, and the number of Hongmeng Zhilian certified products launched by other manufacturers has exceeded 4500.
Focusing on the five major scenarios of smart office, sports and health, smart home, smart travel, and audio-visual entertainment, we will create the ultimate all-scenario smart life experience for consumers: In 2021, Huawei's smart wearables, smart screens, TWS headsets, and consumer cloud services have achieved sustained growth, of which wearable devices and smart screen business revenue increased by more than 30% year-on-year.
Reason two: China's 5G construction has been basically completed in 2020, so there is not so much customer demand in China's 5G deployment, so Huawei's regional sales revenue in China has dropped from 598 billion in 2020 to 413.3 billion, down 30.9% year-on-year.
For key industries such as government, transportation, finance, energy, and manufacturing, Huawei has released 11 scenario-based solutions, established legions such as coal mines, smart highways, customs, and ports, integrated resources to efficiently serve customers, and continuously expanded Huawei's business revenue sources while enabling thousands of industries through the deployed 5G network.
In 2021, Huawei, together with operators and partners, will practice digital transformation and upgrading in more than 20 industries, including ports, manufacturing, coal mines, steel, and chemicals, and sign more than 3,000 commercial contracts for 5G industry applications.
Reason three:
Huawei, like many companies around the world, has been under the same pressure under the epidemic.
Digitalization and carbon neutrality are two of the most important topics in today's world and have far-reaching implications for the future of ICT. The global digital economy is developing rapidly, and the demand for digitalization has exceeded expectations; on the supply side, Shannon's theorem and von Neumann's architecture have encountered major bottlenecks.
In 2021, facing the sustainable development of the future, Huawei will further increase investment in research and innovation, strive to explore the endless frontiers of science and technology, identify industrial needs and overcome world-class problems, take vision and hypothesis as the traction, open cooperation with the global academic community, continue to explore new theories, new architectures, and new technologies, and support the long-term sustainable development of the industry.
2). Net profit growth
In 2021, Huawei achieved a profit of 113.7 billion yuan, an increase of 75.9% over the 2020 profit of 64.6 billion, a net profit margin of 17.9%, and a year-on-year increase of 146.2% over the 7.3% net profit margin of 2020.
According to Huawei's 2021 annual report information: Huawei sold all of its Glory business (one of the important brands and components of Huawei's consumer business) to Shenzhen Zhixin in 2020, and completed the delivery of assets and liabilities related to the Glory business in 2021, so the financial data included a "nother net income and expenditure" of about 60.8 billion yuan, which should be the main reason for the sharp increase in profit and profit margin in 2021.
If Huawei's net profit in 2021 is 113.7 billion yuan and the income from asset disposal is 60.8 billion yuan, the net profit is 52.9 billion yuan, the net profit margin is 8.3%, and the net profit margin is still 13.9% year-on-year compared with 7.3% in 2020; therefore, Meng Wanzhou stressed at Huawei's 2021 annual report press conference that even if the asset disposal proceeds are not considered, Huawei's net profit margin is still improved compared with the previous year, and gives further explanations for this.
"This is mainly from the company's measures in several aspects.
One is that we have adjusted the sales structure of our products, so that our sales gross margin has been better improved.
On the other hand, we have better collaborative management of the entire supply plan, which also greatly improves our entire cycle from order to revenue.
Moreover, due to Huawei's continuous accumulation of technology in the ICT field, Huawei has also greatly promoted the improvement of internal operation efficiency through digital operations. ”
3). Operating cash flow growth
In 2021, Huawei's operating cash flow was 59.7 billion yuan, an increase of 69.4% year-on-year, meng Wanzhou believes that the main reason is that the asset-liability ratio fell from 62.3% in 2020 to 57.8% in 2021, down 7.2% year-on-year, and the capital structure has been further improved, and she emphasized at the annual report press conference:
"We have maintained a very good cash income, in other words, our income can be supported by cash collection, and the growth of operating cash flow can also be a very intuitive indication of the continuous growth of the hematopoietic capacity of the company's main business."
02
Evolution of the shareholding structure
In 2011, Ren Zhengfei said that for the sake of Huawei's sustainable development, he would take the initiative to apply for his own stock to be downgraded and distributed to more, excellent, and driven employees to strengthen the "strivers-oriented" mechanism and ensure Huawei's long-term success.
Xu Chi: The company has a lot of old employees, and the old employees are allocated a little more shares, and it is recommended that the old employees appropriately reduce the shares, so that it is an incentive for the new employees who are working hard and have excellent performance.
Ren Zhengfei: But he had to volunteer. I tell you a message, chairman Sun Zong took the lead this year to reduce her shares, last year there were many excellent backbones automatically wrote applications to reduce their stocks, but also dropped a lot, some people voluntarily reduced by half, the human resources committee has approved.
Next year, when the queue is clear, I will also reduce some of the shares to make the queue more reasonable. Therefore, to see that the consciousness among the senior cadres is still very high, it is possible to understand the company.
Huawei needs this spirit of self-sacrifice, if this can form a mechanism, old employees can not move on their own, for the company's sustainable development and take the initiative to apply to reduce their own stock, distributed to more, excellent, momentum employees, Huawei will be long-lasting. (Minutes of Huawei's Symposium on How to Share Benefits with Strivers on April 14, 2011: Heated Discussion on Employee Shareholding))
In 2019, Ren further said he would learn from Jobs and continue to reduce the number of his stocks to a reasonable degree.
"I didn't have the money when I started my business. I transferred from the army, and our husband and wife received a total of about 3,000 yuan in demobilization fees. At that time, Shenzhen required the company's registered capital to be at least 20,000 yuan, and I obtained 21,000 yuan of funds through fundraising and registered the company.
Today, I personally hold 1.14% of the total number of shares in Huawei, and I know that Jobs's shareholding ratio is 0.58%, indicating that my equity number continues to decline should be reasonable, learn from Jobs. (On January 15, 2019, Mr. Ren Zhengfei was interviewed by CNBC and other 6 international media: Don't go back to the era of smashing textile machines, Huawei sells naked equipment without ideology)
In recent years, Huawei's annual report information confirms that Ren Zhengfei has fulfilled his promise: from 2017 to 2021, the number of employees held by Huawei has risen from 80,000 to 130,000 year by year, an increase of 62.5%, while Ren Zhengfei's shareholding ratio has dropped from 1.4% to 0.84% year by year, down 40%, which is also an important reason why Huawei can always practice the core values of strivers, motivate employees to work hard for a long time, and support Huawei's sustained and effective growth.
03
Business architecture changes
Comparing the business architecture diagrams in Huawei's 2021 annual report and 2020 annual report, it can be found that Huawei's business architecture has undergone changes in three aspects: fine-tuning the group's functional platform, increasing business BG, and integrating regional organizations.
▲Huawei's 2020 business structure (from Huawei's 2020 annual report)
▲Huawei's 2021 business structure (from Huawei's 2021 annual report)
1). Fine-tune the functional platform of the group
In 2021, Huawei's group functional platform will reduce the number of departments such as information security and Huawei University compared with 2020.
Regarding information security, in fact, Huawei has always attached great importance to internal information security, and its purpose is to protect Huawei's intellectual property rights and other labor results.
"It is the first company in China to pass the BS7799 international certification for information security, establish a preventive and monitoring management mechanism for active security, and gradually protect Huawei's intellectual property rights and confidential information." (On April 28, 2004, Ren Zhengfei gave a special report at the "Guangdong Learning Forum" report meeting of the Central Group of the Guangdong Provincial Party Committee: Huawei's Vision, Mission, and Values)
In 2014, Ren Zhengfei further emphasized that information security is a major system engineering of the company, and it is necessary to think architecturally about how to build an overall security environment.
"Information security is a major system engineering of the company, and it is necessary to think architecturally about how to build an overall security environment.
We now have to revisit security. From guarding against vicious competitors in the past to preventing network paralysis and network viruses... From the past to prevent one or two bad people from layers of fortification, to tens of millions of troops of information sharing, coordination.
Information security is a major system engineering of the company, to produce a group of "looking at the stars" people, there must be structural thinking, from the overall point of view of how to build a future security environment.
How to build security on top of a social structure?
How do you build security on top of a technical architecture?
How to build security on the implementation of measures and operations? (Speech by Ren Zhengfei at the Communication Meeting with the Process IT Department on June 24, 2014: Building Our City with Western Bricks)
However, since 2013, Ren Zhengfei has asked Huawei to dilute information security in its foreign propaganda, because information security has become an excuse for the United States to suppress Huawei.
"Second, resolutely do not hype information security. If we over-hype, the products we export will be affected, and if we can't sell them, we can't surpass Cisco, and it's time to starve. To downplay information security, this is a path that the United States has taken to seal us.
In fact, safety is a problem of use, such as the gun is made of iron pipes, guns are not safe, can not blame the person who made the iron pipe, the key is the person who uses the gun. We can only manage our own views, can not manage others, do not always remember to hit others, forget their own progress, this is the least worth it. (On July 23, 2013, Ren Zhengfei's speech at the symposium of the heavy brigade training camp: Mao Zedong and Deng Xiaoping were not trained.
In 2019, Ren Zhengfei further proposed to separate "network security" and "information security" as two issues, and Huawei's responsibility is to ensure network security, but it cannot guarantee information security, because information security is the responsibility of operators and content providers.
Tian Wei: Mr. Ren, has Huawei implanted a backdoor in the device? Are there any security issues? You need to talk to our good friends, to our friends who watch the livestream, to friends all over the world.
Ren Zhengfei: First, we must separate 'network security' and 'information security' as two issues. Network security is a network that is responsible for the connection of human society, and it cannot be paralyzed at will and cannot fail at will, which is a security issue. As we all know, 6.5 billion people must be connected, tens of millions of banks must be connected, and tens of thousands of small and medium-sized enterprises and large enterprises must be connected. Bank transfers jump among 6.5 billion people, and they have to be accurately transferred to everyone, and they can't be less than a penny. This is the responsibility of cybersecurity. Huawei connects 3 billion people, including banks, corporations, governments... For three decades, we have operated in 170 countries without being paralyzed, proving that our network is secure.
For information security, we provide 'pipes', 'faucets'. Comparing the terminal to a 'faucet', the connection network to a 'pipe', and flowing 'water' or flowing 'oil' is not the responsibility of the pipeline, but the responsibility of the operator and the content provider.
Regarding whether Huawei has a backdoor, 100% no backdoor, we are willing to sign a 'Huawei network without backdoor, no espionage' agreement with countries around the world. (On June 17, 2019, American scholars and Ren Zhengfei had a coffee conversation)
Therefore, the fading of information security in Huawei's business architecture diagram should be a concrete embodiment of Huawei's above concepts, and the disappearance of Huawei University from the business architecture diagram should be a response to the "Opinions on Regulating the Registration and Use of "University" and "College" Names" released on the website of the Ministry of Education on May 18, 2021.
"1. Universities and colleges are legal person organizations with specific functions and functions, and shall be established in accordance with the standards and procedures stipulated by laws, regulations and the State, and their names may only be used after approval.
... 3. Except for approved universities, colleges, and internal institutions established by them or organizations initiated by them and registered in accordance with law, other organizations and institutions shall not use the words 'university' and 'college' in plaques, advertisements and other external publicity activities.
... V. For internal training institutions established by enterprises that do not require examination and approval and registration, the relevant departments should guide and supervise them to standardize the use of names, and must not use the names and abbreviations of the words 'university' and 'college' to carry out any form of publicity and other activities. ”
2). Increase business BG
In 2021, Huawei's business structure has added 2 BGs such as Digital Energy and HiSilicon compared with 2020.
Regarding digital energy, Huawei believes that "carbon neutrality" has become a global consensus and will be an opportunity for all walks of life to comprehensively upgrade; Huawei Digital Energy is committed to integrating digital technology and power electronics technology, developing clean energy and energy digitization, and promoting the energy revolution, which is expected to become a business with scale, profit, good growth, and great value.
"'Carbon neutrality' has become a global consensus, which will be a broad and profound economic and social change, which is not only a revolution in energy production and energy consumption, but also an opportunity for comprehensive upgrading of all walks of life."
... We believe that the global energy industry will move from being dependent on natural resources to being technology-driven. Fossil energy poses challenges to the environment and sustainable development, and the development of technology-driven clean energy will bring new momentum to world economic growth and sustainable development.
... Digital Energy is an organization that provides clean power generation, transportation electrification, site energy, data center energy, embedded power supply and other products and solutions for enterprise/industry customers, and is committed to combining power electronics technology with digital technology to provide customers with high-quality, high-efficiency, green and low-carbon power electronic products, so as to enable customers to succeed in business. (February 28, 2022, Huawei Annual Report 2021: Management Discussion and Analysis, Corporate Governance Report)
Founded in 2004, HiSilicon is responsible for the development and delivery of all of Huawei's semiconductor chips and core devices, until 2019, Ren Zhengfei still defined HiSilicon as a combat team that follows Hua as the main battle team, just like the refueling trucks, stretcher teams, and bridge teams in the main battle units, which will not be independent.
In the face of the pressure of a sharp decline in sales revenue, Huawei still independent of HiSilicon and assumed the responsibility of playing more grain for the market and increasing the fertility of the land.
According to Huawei's 2021 annual report, HiSilicon is positioned to provide end-to-end board-level chip and module solutions such as perception, connectivity, computing, and display for intelligent terminals, display panels, home appliances, and automotive electronics, and undertakes responsibilities for R&D, Marketing, ecological development, sales and service in the chip and module industries, and is responsible for business results, risks, market competitiveness, and customer satisfaction.
3). Integration of regional organizations
In the 2020 annual report, Huawei's regional organizations are still divided into two separate parts of the ICT infrastructure business and the consumer business, and in the 2021 annual report, Huawei's regional organizations have been integrated into a unified whole, which should be Huawei's organizational structure to further improve the collaborative creation of customers, products, and regions, that is, by integrating market-oriented first-line resources and strengthening the operation optimization of first-line project-based organizations.
"We have built an organization that co-creates customers, products, and regions, and has promoted the gradual shift of business focus."
According to the principle of customer and strategic decision organization, after long-term evolution, the company has gradually formed an organizational structure of three-dimensional coordinated operation of customers, products and regions, and jointly creates value for customers, but the responsibilities have different emphases. Regional organizations focus on meeting customer needs and forming business results; operators and enterprise BG focus on business growth and customer satisfaction improvement; product and solution organizations focus on building the competitiveness of products and solutions to support business success; consumer BG is an end-to-end business organization; and strategic reserve team is a mechanism for companies to build strategic capabilities and hone cadres in practice.
In recent years, the company has clarified the management requirements of 'front-line call for artillery fire and organ support services', put forward the operation concept of 'squad leader war', strengthened the optimization of front-line project-based organizational operations, promoted the gradual sinking of the operational power of organs, and promoted the company's operation of the center of gravity to move forward. (March 20, 2018, Huawei Human Resource Management Outline 2.0 (Public Discussion Draft))
04
Conclusion
Since 2019, the United States has begun to suppress Huawei with all its might;
In 2020, Huawei's sales revenue reached 891.4 billion yuan, reaching a highest level of all;
In 2021, Huawei's sales revenue fell by 28.6% year-on-year, but the net profit was 113.7 billion yuan, an increase of 75.9% year-on-year, and the operating cash was 59.7 billion yuan, an increase of 69.4% year-on-year.
Overall, Huawei's scale has become smaller in 2021, but profitability and cash flow acquisition capabilities are increasing, and Huawei's ability to cope with uncertainty is constantly improving; even under such difficult conditions, Huawei is still constantly strengthening R&D investment and laying a solid foundation for future development, so we have every reason to believe that Huawei will be able to survive and survive with quality!
"In the past three years, 'surviving and surviving with quality' has been Huawei's development goal, but we have not easily changed the company's vision and mission because of changes in the external environment.
Difficulties and challenges will only make us stronger: while we strive to ensure business continuity and continue to serve customers who choose Huawei, we will strengthen investment in research and development, strive to solve technical problems and explore the frontiers of science and technology, and lay the foundation for the future. (February 28, 2022, Huawei's 2021 Annual Report: Chairman's Speech)
[Thank you for reading, forwarding is the biggest encouragement]
Ren Zhengfei internal speech audio version
"Like" is like, "watching" is true love