- Huawei’s IP strategy helped power a 34% revenue surge this year
- A counter-intuitive move back in 2022 by CEO Ren Zhengfei is still paying dividends
- Huawei has incepted a new age of IP cooperation between the world’s largest vendors
2022 was a tough year for Huawei. As the U.S. administration pounded it with a new wave of technology sanctions, its profits tumbled by 69%, and analysts were all-of-a-sudden bearish on its prospects.
Fast-forward to today and those problems seem like a distant memory. Huawei recently reported a 34% jump in revenue to $58.6 billion for the first half of 2024 and is now close to being a de facto choice for advanced telecom infrastructure in Africa, the Middle East and Latin America.
A little-known significant contributor to the turnaround is Huawei’s intellectual property (IP) strategy.
Back in 2022, beset by problems, Huawei’s founder and CEO Ren Zhengfei made a decision that at the time seemed counter-intuitive to many, ordering his company to unlock its patent library and license its most closely guarded technologies – many for the first time.
It was a move that paid off big time, generating a not insignificant amount of revenue for the company but also — and more importantly — heralding a new era of cooperation between big tech companies around the globe.
In just the last 12-month period Huawei has published 36,000 new patents, and inked 40 patent license agreements with companies including Xiaomi, Amazon, VIVO, Sharp, and Ericsson, ensuring even more widespread use of its technology worldwide (probably not the result Secretary of State Mike Pompeo had in mind when he came up with the U.S. sanctions package).
I talked to Alan Fan, the executive behind Huawei’s IP initiatives, about how patents are the beating heart of not just the telecom industry, but also Huawei.
Steve Saunders: Alan, thanks for agreeing to this interview. I've been wanting to get your perspective on the IP licensing landscape for a while, particularly how it's evolving in the era of digitalization and vertical industries.
Alan Fan: Steve, it's a pleasure. I appreciate you taking the time to understand what we do at Huawei. The IP world has always been active, particularly in the telecom space, but I think there are two key changes worth noting. First, licensing is becoming more versatile and comprehensive. It used to be mostly about handsets, but now we're seeing licensing for a wider array of devices like IoT and Wi-Fi, as well as services like streaming.
Saunders: That makes sense. We're seeing more connected devices than ever before, and the technology is evolving rapidly.
Fan: Exactly. And the second big change is how companies are approaching licensing. In the past, with a limited number of handset companies, litigation was the norm. But now, there are just too many licensees and licensors, making litigation inefficient. We're seeing more negotiated and mediated deals, especially in these new areas.
Saunders: Has that meant you've had to expand your team at Huawei to handle all these new areas?
Fan: You know, I'd love to hire more people, but the business is...well, let's just say it's not an easy time. We're focused on not firing anyone.
Saunders: Fair enough. Your team has a great reputation, though.
Fan: We're doing what we can. And to be honest, many of these new areas, like AI, aren't really licensing active. [Our focus] is more on the essential standards-based communication technologies patents, especially with the big companies. AI is different because many companies don't even file patents for it.
Saunders: What about your portfolio? Huawei has a massive R&D operation, the biggest in the world. How many of your patents are licensed versus developed internally?
Fan: We originated the majority of our patents. Only a very small portion were actually purchased. We divide our patents into two categories: those filed to protect our products and those filed for standards. About 50% of our patents are related to standards, and we have an obligation to implementers to license those standard-essential patents.
Saunders: So you're telling me that in an industry that's been so heavily litigated, there's a "peaceable kingdom" of IP licensing under the surface?
Fan: That's exactly right. And the geopolitical issues that have impacted Huawei haven't really affected our licensing business. The patents are public, the processes are public, and we work with companies across the globe on standards, even those in the US.
Saunders: That's a powerful statement. It shows that the communications industry continues to do the work that needs to be done despite the political noise. I'm curious about your business' profitability. I was talking to Nokia, and they say their IP and licensing division is wildly profitable, the engine room of their business. How does that compare to Huawei?
Fan: It's harder for us to measure because we have a much larger product sales base and have to pay royalties ourselves. We generate a good profit, but it's less than some of the other companies, like Nokia. We also take a less aggressive stance on pricing than they do.
Saunders: So it's more of a legal and compliance function for you than a separate business unit?
Fan: That's a good way to put it. Huawei's approach is different from Ericsson and Nokia, and that's a key part of the story. But $560 million is not an insignificant number. It's still a significant revenue stream for us.