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Huawei crackdown

Huawei says underperforming managers to face ax in 2020

Tech group to go 'all out' for Android alternative as US pressure continues: chairman

A Huawei store in Beijing: The Chinese telecom equipment maker's chairman told employees in a letter to expect a "difficult" year ahead in 2020. (Photo by Ken Kobayashi)

TAIPEI -- Huawei Technologies warns of slower growth and management cutbacks ahead in 2020 as the Chinese group battles restrictions on access to U.S. technology.

"It's going to be a difficult year for us," Eric Xu, rotating chairman of the world's top telecommunications equipment maker, said in an end-of-year letter that goes public Tuesday.

The message comes ahead of a new year that will test how well the company can compete for global 5G business and smartphone customers under U.S. pressure.

The company will remain on the U.S. trade blacklist that restricts its use of American technologies, Xu said, and "we won't grow as rapidly as we did in the first half of 2019."

Washington will continue suppressing China's technological advancement over the long term, he said, creating "a challenging environment for Huawei to survive and thrive."

To endure, the world's second-largest maker of smartphones will toughen its stance on lagging units and managers.

"We will remove mediocre managers more quickly," Xu said. "Every year, managers performing in the bottom 10% will be removed. Any teams that don't contribute to enhancing the competitiveness of operating units or improving strategic support and services will be merged or downsized."

Xu said his company will prioritize supply chain security and go "all out" to build its own mobile software system -- Huawei Mobile Services -- designed to replace many popular applications such as Google Maps, YouTube and Gmail.

Media reports suggest Washington plans even stronger restrictions on the Chinese tech giant in 2020. U.S. and other companies need Commerce Department approval for providing services to Huawei if their products contain 25% or more of their value from American technology.

The U.S. also urges foreign allies such as the U.K. to block Huawei from providing network equipment for 5G communication, the next generation of wireless technology enabling faster data transfer. The Federal Communications Commission banned American carriers that receive government funding from buying Huawei services, and ordered them to remove existing gear made by the Chinese company, citing espionage and security concerns.

Huawei consistently denies those claims and has filed lawsuits against U.S. agencies.

Huawei has shown resilience amid the crackdown that began in May. Revenue grew 18% to 850 billion yuan ($121 billion) in 2019 -- matching the level of Google parent Alphabet -- despite missing the Chinese company's initial goal of $125 billion to $130 billion prior to the U.S. campaign.

Though Washington warns of security risks from Huawei's 5G technology, the Chinese company secured over 60 related contracts worldwide, nearly half of them coming from Europe. Sweden's Ericsson, Huawei's biggest rival in telecom gear, said it had signed 78 commercial 5G contracts or agreements with global carriers as of December.

Huawei's smartphone business became the company's biggest revenue contributor in the first half of this year. Shipments reached 240 million units for all of 2019, up 16.5% from 206 million last year. The company is expected to remain ahead of Apple and behind only South Korea's Samsung Electronics.

However, Huawei missed its target of overtaking Samsung as the global leader this year. U.S. restrictions on the Chinese company's use of Google's Android OS and Google Mobile Services hurt Huawei's overseas smartphone sales.

The company developed its Harmony OS and Huawei Mobile Services to protect the smartphone business. "In 2020, we need to go all out to build the HMS ecosystem," Xu said, in order to "ensure that we can keep selling our smartphones in overseas markets."

Huawei also is focused on obtaining new hardware suppliers from outside the U.S., with Xu calling the effort a "race against time."

"We must increase supply chain diversity, as this is essential to our supply security," Xu said. "Any risk that undermines our business continuity must be treated as a matter of life and death."

Huawei increased staff to 194,000 this year from 180,000, with most of the new hiring in China. The increases are intended to bolster technological capabilities as the company combats the U.S. trade blacklist.

The Chinese company is redeploying senior executives and scientists who have American citizenship or residency, fearing that U.S.-linked tech staff could have conflicts of interests and be exploited by American intelligence agencies, the Nikkei Asian Review reported in October.

But the company still hired around 3,500 new foreign employees in 2019, a source familiar with the matter said.

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