10 Questions with Fred Episode Eighteen | President of Huawei Honor Business Unit, George Zhao Opposes with the Idea of Drawing Comparison Between Mobile Phones to PC Industry

10 Questions with Fred Episode Eighteen | President of Huawei Honor Business Unit, George Zhao Opposes with the Idea of Drawing Comparison Between Mobile Phones to PC Industry

Sept 18th 2018| Investment By:Sakura
It doesn't change the relation between man and machine and between the men.

Time: At 22:00 on June 8

Group: Camp of Ten Questions with Fred Wang

Guest:

George Zhao: President of Huawei Honor. In March 1998, he joined Huawei Company and served as the president of Huawei CDMA/WiMAX/TD product lines, director of global sales department of wireless solutions and vice president of Western Europe Dept. In March 2015, he took the position of president of Honor and was fully in charge of the Honor cell phone business.

Fred Wang: Founder of Mars Finance, chairman of Linekong (HK. 8267), the founding partner of Geek Founders and former senior vice president of Kingsoft.

The following is the sorted dialogue script.

Fred Wang: "Scary technology" has become one of the hottest buzzwords in China's smart phone industry recently. Today, we invite the Honor president George Zhao, the manager behind "scary technology", to join the Ten Questions with Fred Wang.  Mr. Zhao and I have not met in the past, so today's interview should be the chat between net friends. However, I have great admiration for Mr. Zhao, who has achieved the number one position in the domestic Internet mobile phone brands in a short period of time. I found that more and more colleagues and friends started to use the honor phones, and many of them changed from " iPhone Fans" to "Huawei Fans", which shows the great charm of the Honor cell phone.

It is unknowing that the Ten Questions with Fred Wang has accomplished for 18 times. Although the boundary has expanded from blockchain to Internet, technology and finance aspects, the perspective of asking questions on the history and humanity remains unchanged, and the ways of listening and questioning remains unchanged. What is impressed in our hearts and cannot be forgotten for a long time must be the flesh-and-blood people we have talked with, met with and got along with. So, I am looking forward to the conversation with George Zhao tonight.

Question 1

Fred Wang: I know that the Honor is an important mobile phone brand of Huawei, and Ren Zhengfei, head of Huawei, has high expectations for the Honor and clearly proposed to build an independent brand of Honor cell phone. From the Honor V8, the V9, to the V10 and the latest release of the Honor Play, and so on, all of them have achieved success in the market. But I found that, although it is you who makes new product launch event in person every time, and Honor products are well sold and spoken highly in the market, however, you are a rarely unknown person in the public eyes, on the contrary, as regular launcher of the new product briefing, either MI founder Lei Jun, Smartisan CEO Luo Yonghao, or your colleague Richard Yu is more popular than you, is it because Huawei requests managers not be too high profile, or because your personality?

I find that in recent years, a large number of Internet products are often helping to personalize their brands. If the person in charge of products or business is too low-profile, will the product lose its individuality? Apple's Steve Jobs, for example, attached much importance in this regard.

George Zhao: On the one hand, the company's culture is relatively low-profile, which is also related to my personality. On the other hand, I believe that the brand and products are more important than individuals, more worthy of publicity, and more worthy of attracting public attentions and concerns.

Huawei executives including Richard Yu are all have the technological background, devoting themselves to polishing their products and brands and influencing users with products and brands. Just like the Honor Play released this time, they are actually products and technologies with their own traffics.

It can be seen from the company's entire development concept that we do not win by sensationalism. We spent 10.4 billion Euros on research and development in 2017, accounting for 14.9 percent of our revenue. It ranks sixth in global research and development spending, ahead of the Apple Company. We're better at talking about products.

Question 2

Fred Wang: On the afternoon of June 6, Richard Yu, CEO of Huawei's Business Group (BG) of consumer service, held a news conference with you in Beijing to launch new versions of GPU Turbo and Honor Play phones. It is said that the accelerated GPU Turbo graphics processing is a "very scary technology." Although the performance of the live demo was indeed amazing, whether it was exposed online or a deliberately arranged by your competitors, we soon found that there was a view on the internet that "GPU Turbo is an optimization special for a few games, it is just a marketing gimmick". In response to such innuendo, would you say something here?

George Zhao: The developers should be outraged when hearing such words. GPU Turbo is a revolutionary graphics processing technology, which is based on the hardware and software collaboration and integrated design, and the entire system of hardware and software is approaching the perfection. It is equivalent to adjusting the microcode inside the GPU, and it is integrated with the operating system in design. This technology is based on our own software and hardware development and it is not supported by other chip platforms at present.

At current stage, the 6 games we optimized involved in various fields and the directions, they are very representative, such as Honor of Kings and PlayerUnknown's Battlegrounds(PUBG), we are able to optimize the two kinds of large games of big resource consumption, so you can imagine, it is of no problem to optimize the other similar games. Therefore, it is not as the outside world said that our optimization is special for individual games only.

In addition, I would like to emphasize that the result of our PK with competitors as shown in the launch event, our multi-thread processing technology defeated the single-thread technology of competitors, only Huawei and Honor can achieve such a difficult action. If you all are on a single thread, then we lead our competitors not by a street, but by several streets.

Question 3

Fred Wang: At the launch event the day before yesterday, Richard Yu supported the new version of Honor phone together with you on the same stage, which shows Huawei attaches much importance to the Honor brand. I have noticed a data: the shipments of cell phone series of two major brands of Huawei and Honor have reached 153 million in 2017, with China's market share remaining the first and the global share ranking the TOP 3. Yu expected the sales of the double brands of Huawei + Honor would exceed 200 million units in 2018. However, I have reviewed a lot of materials and not found the proportion of Honor in Huawei’s total mobile phone business. Are you convenient to disclose the relevant data in the Ten Questions with Fred Wang? And I found that the data released by domestic smart phone makers are different in the market.

George Zhao: I said in the middle of last year that we would not release our sales figures within two years. This is partly because we want to concentrate on doing our own business, partly because we want to avoid quarrelling with others, and so far we've done it. In fact, many data reports can be used as references at present. We think the data released by the Sino Market Research is relatively accurate in China, while as for overseas data, you can refer to the GFK’s.

Fred Wang: It has been four and a half years since December 2013 when the Honor brand has been operating independently. Honor's original location was Internet mobile phone. I want to know what the original location was based on. And now, the market situation has changed a lot. I heard that Mr. Ren Zhengfei said inside Huawei at the end of last year that the sales of Honor brand should not be limited to form any longer, nor place too much emphasis on online and offline sales. Does this mean that the historical mission of Honor’s Internet mobile phone has been completed?

George Zhao: The Internet mobile phone emerged in accordance to the rapid development of mobile Internet. It brings comprehensive innovation of user communication, brand experience, product research and development as well as marketing efficiency. Up to now, the advantages of Internet mobile phone such as lightweight assets, quick communication, easy purchase and high efficiency still exist. However, we should make it clear here that the Internet mobile phone model is not only a channel model, but also a mode of thinking and a business model. It is obviously one-sided to define or measure whether a brand is an Internet mobile phone brand simply by using channels.

In my opinion, the omni-channel mode that integrates the online and offline channels embodies the continuous evolution of Internet mobile phones. The core of Internet mobile phone is to catch consumers' demands faster, and then respond to and satisfy them more quickly, so as to improve efficiency to the utmost through the combination of online and offline channels.

At present, all staff of the Honor team is less than 600 persons worldwide, and Honor cell phone probably is our most efficient mobile phone brand. In addition, our marketing expense is also the lowest in the whole industry; the annual marketing expense is less than 3% of the total revenue. With less than 600 marketing and sales staff worldwide, you may not find a more efficient team than Honor, which is the charm of the Honor Internet phone.

Question 4

Fred Wang: As for the two brands of Huawei and Honor, Mr. Ren Zhengfei made clear early that the Honor brand should be operated independently, and according to the division of work, Huawei brand is oriented toward the high-end market while the Honor is oriented toward the youth market, and thus forming a "double-horn" competition mode. However, I have learned that there is a lot of overlap between the peers of Huawei and Honor at the middle- and low-end market both in terms of hardware configuration and price. Then, how to define the difference between these two brands and the target markets to be covered? What is the strategic value of doing two independent brands to Huawei at the same time? I can understand that this kind of competing method is similar to the two brands of OPPO and vivo that maintain the competition at the same level, but ensure the total share advantage of the competitive strategy in total sum? What's more, what do you think of Honor's brother, a competitor directly named after Huawei?

George Zhao: It feels like a little pit, but it's really not a problem inside of our company. We learn from each other to promote reciprocally, we learn from Huawei how to build brands and products, and Huawei learn from Honor how to use the Internet for marketing and how to be closer to young people. In the operation of double brands, we are more concerned on the advantages of fully satisfying consumers. In the past seven years, the sales volume of Huawei + Honor brands has increased by 51 times.

Huawei and Honor brands can meet the demands of different consumers, and the two brands are located toward the markets according to different people faced respectively, of course, part of the product users may overlap, there are some products overlapping in the price and configuration, because the brands are oriented to the independent markets, and it is very natural to have their own respective complete product series.

The location of Honor is very clear, which is to create fashion technology products for young people. From the perspective of market and consumers, the brands of Huawei and Honor are more and more obvious in brand identity and separation. At present, it is obvious to increase the market share brought by the operation of double brands.

Question 5

Fred Wang: I feel that the volume of Honor phone on the Internet is not as big as that of MI phone, but the sales volume published is not bad at all. Many phone makers have tried to beat the MI with its online marketing, and most of them have failed. Many people think that MI's marketing is in the light and the Honor marketing in the dark. The every martial art in the world has its own uniqueness; I believe you must have your own unique marketing means, so please tell me your secret?

George Zhao: In my opinion, there is probably no brand stronger than MI phone in the current market in terms of Internet marketing, which is the strongest part of MI. But the strongest part of Honor is the product itself, including its character, quality, performance, experience and so on. The market competition mainly depends on advantages that you have, it is OK that we will do our best and make greatest efforts in marketing.

Actually, Honor has always been a long-distance runner, you'll see, we are improving ourselves every year and we are also in the improving communication with consumers, because our products are spoken highly by whom used our products, the NPS (Net Promoter Score) of our products has been in a leading position all the time. Huawei, Honor and iPhone shared first place in the Chinese market, with the NPS reached 47%. In terms of long-term competition, our advantages will be presented. Of course, we should learn from MI and Lei Jun in terms of marketing.

Question 6

Fred Wang: Recently you begun to emphasize from time to time that AI is the core strategy of Honor phones. In terms of mobile phone AI, Honor has been the first for many times in the industry, from the Honor Magic released in December 2016, which started the era of mobile artificial intelligence, to the AI 1.0 and the AI 2.0 of the Honor V10. Many people believe that the mobile phone manufacturers only want to add new concepts in the homogenization competition for packaging, but the gimmicks are more than the functionality. How do you respond to that?

George Zhao: At present, when I launch a release event overseas every time, I am asked by media why Magic is not released overseas.

AI is divided into three layers. The first layer is the AI hash rate of the underlying AI. The NPU (Neural-network Processing Unit) of Honor Play, Honor 10 and Honor V10 is the strongest in artificial intelligence hash rate. The second layer is the wisdom operating system. In Honor Magic, we first introduced the operating system of artificial intelligence - Magic Live. The third layer is the application layer. In this layer, the hash rate, processing capacity and experience of AI can be energized to improve the application and optimize the use experience.

Today, we can see that since the Honor Magic, we have started to exert power on all three levels of AI. We are a mobile phone brand that exerts power on all three levels at the same time. Since we released Honor Magic and Honor V10, almost all brands in the market are rubbing with our AI concept, but now the AI of Honor brands has entered in AI 2.0 era, in this aspect, we are at least half a year ahead of other brands.

Fred Wang: We know that the basis of artificial intelligence is big data and the application effect of narrow AI will be very poor without grasping enough data assets. But today, consumer behavior data has been controlled by Internet companies. In the United States, they are Facebook, Google and Amazon, in China, they are Tencent, Alibaba, Baidu, and even Jinri Toutiao (today's headlines). As a hardware manufacturer developing AI intelligence, it is insufficient to have the AI hash rate only without the data assets. Honor will face the same problem as Apple Inc. I think the artificial intelligence of Honor is not easy to do. What do you think?

George Zhao: In fact, I said at the time releasing the Honor Magic that China is likely to be lead in the era of artificial intelligence if we build an open and cooperative ecological relationship at first.

Honor has always insisted that "where there are friends, there is a future" ". At present, we are not in a conflict with Internet companies and service providers, but in a cooperative relationship. Honor has never dreamed of creating a closed ecology, and it is impossible to do everything with its own efforts. Whether it is to share the capabilities and interfaces of AI, or to co-construct the AI ecosystem, it requires everyone to contribute his respective capabilities.

Honor hopes that more partners and Internet companies will realize that AI is a great opportunity for various industries and the entire industrial chain, and everyone should join the alliance for such cooperation.

Question 7

Fred Wang: The blockchain has been described in the industry as an important technology that triggered the fourth industrial revolution. At the 19th Academician Conference of the Chinese Academy of Sciences and the 14th Academician Conference of the Chinese Academy of Engineering, President Xi said that a new round of scientific and technological revolution and industrial transformation are reconstructing the global innovation landscape and reshaping the global economic structure. A new generation of information technology represented by artificial intelligence, quantum information, mobile communication, Internet of Things and blockchain, is accelerating their breakthroughs in applications. If I remember correctly, this should be the first time that the top leader of CPC central committee has referred to "blockchain" in a public statement.

As far as I know, major hardware manufacturers have made many layouts around blockchain technology. Lenovo launched S5 - its "first blockchain mobile phone"- in March. Luo Yonghao, CEO of Smartisan, also said that Smartisan will definitely make blockchain mobile phone when he joined the Ten Questions with Fred Wang. In mid-April, Hicloud released a white paper on blockchain and emphasized that it only focuses on technology and does not touch virtual currencies. There are also rumors saying that the overseas Huawei mobile phones are installed with the digital currency wallet. What do you think about blockchain? As the blockchain is so popular today, will Honor consider launching a blockchain phone or hardware business?

George Zhao: Some rumors have clarified, the blockchain is a breakthrough technology, but it's still a concept comparing to the application of AI on mobile phones. At present, we are focusing on building AI technology, and we are more optimistic about AI's improvement of mobile phone capabilities. We are also concerned on the blockchain technology.

The real blockchain mobile phones will not rise until the users' real needs are satisfied and the practical applications are popularized. In the future, it needs more efforts and exploration of the industrial peers to popularize the blockchain mobile phone in the actual application of mobile phones and generate substantial benefits that are truly beneficial to consumers.

Question 8

Fred Wang: Some people in the industry have said that the honor AI engine has triggered Internet companies such as Tencent and Baidu and posed a strategic threat to them by involving in the major core interest of Internet service access. Do you agree with it?

George Zhao: I should be over-interpreted and nervous. Huawei and Honor, as hardware and mobile companies, are in the cooperative relations with Tencent, Alibaba, Toutiao, Baidu and Meituan on Internet services. We need to work together to build an AI ecosystem.

We should not be closed and self-fettered, instead, we should contribute our capabilities to dock data and logic so that AI can provide a better experience. If you restrict your activities to a designated area or sphere, I am not allowed to touch you materials and I'm not open to you, the development of artificial intelligence in the future will be greatly hindered.

Question 9

George Wang: In the second half of 2017, you proposed to build another Honor overseas in about three years to replicate the story of its rapid growth in China. But at this time, Either MI or Huawei phones of the same company have occupied a large share in the major mobile phone markets in Europe, the United States and Southeast Asia. Will Honor face an internal and external competition abroad? As the Honor president, how do you plan to break the ice in overseas markets? Is it possible to take advantage of Huawei's existing channels, or find another way?

George Zhao: When Honor approached the global market, it is necessary to build up our ability to independently face the market, users, channels and retailers. Only by solidifying our ability can we go further and further in the future. On the whole, Honor's overseas strategy should be gradually shaped in the second half of 2017, at first it was discussed within the Group and then fully implemented.

At the release event held in London on December 5, 2017, I officially unveiled the Honor’s three year overseas strategy, which is to achieve the top five global sales volume by 2020. The domestic and overseas sales volumes are 50:50, and the proportion of overseas sales volume in 2017 is 15%, and 85% of the sales volume is from China. Sales growth in overseas markets was more than 100% in the January-May period of 2018. At present, the overseas sales volume accounts for more than 20 percent, and it would be 25 or 30 percent in this year. Honor's market share in Russia and Western Europe is in the second place at present.

We are not afraid of the competition in the overseas market, but we will firmly adhere to the core concept of our brand and create fashion technology products for young people. Therefore, as far as our brand positioning and approach to the market are concerned, we will never occupy the market at low price due to the competition.

In fact, the common way of many Chinese brands going overseas is to occupy the market at a low price, but it gives people the feeling that your brand will never be at high level.

In the first half of 2018, our overseas business is growing by 100%, and the development of Honor overseas is at the healthy and high-speed up to now. You'll find that the Honor starts to expand the market with the flagship mobile phones, represented by the brands of Honor 8, Honor 9 and Honor 10.

At the launch event in London, I was asked by the media: "what do you think of your competitors?" and I said, before I answer your question, let me ask you a question, when you look at the Honor, will you think of the Honor brand, what do you think of the Honor products? What about Honor 8 and Honor 9? Compared with Honor 9, the overseas sales of Honor 10 is 300% of that of Honor 9 in this year. It hasn’t been listed in many countries, and the current sales increase is very fast. It is very clear for us to establish our brand image in the overseas market. Driven by the brand of flagship phones, our sales volume of 1000-Yuan phone series has been growing very rapidly.

Question 10

Fred Wang: After several years of rapid growth, the global smart phone market is showing signs of slipping. According to IDC, 336.1 million smart phones were shipped worldwide in Q1 2018, down 2.4% year-on-year. China's smart phone market shipped 87.5 million units, yearly down by 16 percent. Although the Honor mobile phone keeps growing against the trend in Q1 2018, I would like to ask after a year, whether the mobile phone manufacturers around the world will face the big inflection point in the market that PC had to face. Even with Moore's law, the PC would have finally shifted from "star business" to "skinny dog business" like the home appliance industry did, as if all consumer electronics would reach such a big inflection point. How long do you think the big inflection point for the mobile phone industry will come?

George Zhao: I can't agree on that. The inflection point of the mobile phone industry and the inflection point of Honor phone are two concepts. We can see at least that Honor phone will still be in a healthy and rapid development stage in the next 3-5 years. I don't agree with the analogy of the mobile phone industry to the appliance industry or the PC industry.

From the perspective of global development, the mobile communication technology is a major upgrade every ten years. From 4G to 5G, it will definitely bring revolutionary application experience, but the computer industry has not been driven by such technological revolution.

There is no essential difference between what a computer can do a decade ago and what it can do a decade later. It is about image processing and PC games. It doesn't change the relation between man and machine and between the men.

But mobile phones are different, from calls and text messages of 2G to internet surfing of 3G and video programs and online games of 4G. Every innovation in communication technology will bring new applications and development of new technologies. The most important thing is to change the relation between man and machines and between the men. Such change in relations is the realization of integration and connection. In the age of 5G, due to the progress of communication technology, many revolutionary applications will spring up, and what will happen to the relations between man and machines and between the men? All these are worthy of expectation.

So I think there is no contrast between the so-called inflection points. It's common that phones are forced to refresh every technological cycle, and it's one of the reasons that phones don't have the same cycles and patterns as PC’s. Mobile communication has a period of about 10 years, which is related to the construction period, maturity period and recycling period.