Embracing the Future and Building a Better Connected World

The stars wheel as we turn the last page of 2014 and welcome in the New Year. On this festive occasion, on behalf of the management team, I would like to thank each and every one of you for your hard work, and your families for their unwavering understanding and sacrifices. My special thanks go out to all of our customers around the world for their trust, and our partners for their unfailing support. A happy, healthy, and prosperous New Year to you all!

In 2014, the ICT industry grew tremendously as 4G was rolled out worldwide. Technological innovations in cloud computing, Big Data, and the Internet of Things (IoT) accelerated, with smart devices connecting the lives of more and more people. We have seized these opportunities, continued to focus on our pipe strategy, streamlined management, and maintained effective growth. As a result, our sales revenue is expected to reach US$46 billion in 2014, an increase of over 15% year-on-year.

We implemented an extensive organizational transformation in 2014. To adapt to the increasing convergence of IT and CT technologies, we established Products & Solutions organization to maintain our edge in innovation through an integrated ICT portfolio. Based on the business patterns and operational characteristics of Carrier, Enterprise and Consumer segments, we restructured three business groups (BG) to deliver innovative, differentiated, and leading solutions. We optimized our regional organizations and accelerated delegation and empowerment to operational units in the field.

In this past year, we continued to consolidate SoftCOM, our future-oriented telecom network architecture, by deeply integrating the concepts of cloud computing, Software-defined Networking (SDN), and Network Functions Virtualization (NFV). We have developed solutions that will reshape the telecom industry in four areas: services, operations, network functions, and network architecture. We have helped carriers with their comprehensive businesses transformation and network evolution.

We have also launched SD-DC², Service-driven Distributed Cloud Data Center solution; the OceanStor converged storage system, the first of its kind in the industry; the AR511, our IoT-oriented agile gateway; and our agile data center networking and agile branch solutions, just to name a few. All of these offerings will help our customers build the technological foundations for business innovation in the cloud era. We are committed to establishing an open and innovative industry ecosystem amid ICT convergence to integrate value across the industry chain.

For our carrier business, with accelerated deployment of 4G mobile ultra-broadband networks, we have managed to secure contracts in nine major global data traffic hubs, including Moscow, Rio de Janeiro, and Bangalore. In China we have successfully built up a business presence in 4G network in every provincial capital. Our 400G router has won businesses from over 160 customers. We have worked with 20 leading carriers around the world in joint innovation on NFV/SDN integration services. We should be proud that more and more carriers have recognized Huawei as a trusted strategic partner for their business transformations.

For our enterprise business, we have maintained our strategy of "being integrated" through open collaboration. We have worked with strategic partners including SAP and Accenture for joint innovation on cloud computing and Big Data. We have now built over 480 data centers around the world, including 160 cloud data centers, while our agile networks and S12700 agile switch now serve hundreds of top-tier industry customers.

For our consumer business, we now operate with dual brands, Huawei and Honor. We strive to make the best phones under the premium product strategy. Our smartphones have become market leaders in multiple countries. Market share of Huawei smartphones has increased significantly, with over 4 million P7 units shipped to well over 100 countries and regions. The Mate7 has been the talk of the high-end market and in short of supply. More than 20 million smartphones with Honor brand have been sold through online channels worldwide, an amazing increase of 30 times in just its first year.

Standing upon the threshold of 2015, we can almost touch the future. ICT technologies, notably mobile broadband, cloud computing, Big Data, and IoT, are becoming the engine that drives transformations in many industries.

Industry 4.0, smart transportation, telemedicine, online education, and smart cities are all examples of how traditional industries are relying on ICT for the next round of evolution. ICT infrastructure has shifted from a support system that helps improve efficiency to a production system that drives value creation, and has become a new factor of production, alongside land, labor, and capital.

We predict that by 2025, there will be more than 100 billion connections worldwide, creating a market of unprecedented scale. How to store and process, transmit and distribute, acquire and present these massive data are enormous challenges as well as strategic opportunities to Huawei.

To address these challenges and seize opportunities in 2015, we need to continuously improve in the following aspects:

Increasing the flexibility and responsiveness of our organizations to be more agile

We will delegate responsibility and authority to operational units in the field to achieve the operational model of "squad leaders' fight". We will enable field organizations through "training in real practice" with the emphasis on improving manager’s strategic mindset. We need to streamline back offices and strengthen our strategic reserves to build more flexibility and responsiveness into our organizational operations. While delegating more authority to the field, we will strengthen our existing oversight system to ensure process owners, business managers, and subsidiary boards truly fulfil their oversight responsibilities.

Shifting from function-centered to project-centered operations

Customer projects and product projects will constitute our primary business operations in the future. Therefore, improving project operations and management capabilities will be our key means of boosting efficiency and profitability over the next few years. In 2015, we will continue to promote project-centered operations and begin piloting pre-sales and post-sales alignment at the project level, aiming to resolve issues in three key areas: project manager authorization, project resource assurance, and budget management. These initiatives will drive the company to change gradually from a weak, "function first, project second" matrix structure to a strong, "project first, function second" matrix structure.

By building up our strategic reserves, including the tiger teams, the Special Project Dept, and the Project Mgmt Resource Pool, we will promote experience sharing and enhance organization, talent, technology, and management capability. The overall purpose here is to support the company's new operating model of "those who hear the rumbles of gunfire can call for the artillery", field offices will be given both responsibility and authority, and back offices will provide enablement and oversight.

Advancing management transformations to increase operational efficiency

To become the leader of the ICT industry, we should not only seize the technological leadership, but also learn and integrate best practices from other companies into our existing advantages. This will help us develop powerful organizational capabilities and a strong management system.

Therefore, we must focus on the two major business streams, market-oriented innovation and customer engagement, and strive to integrate transformation projects across different functions, processes, and departments at representative offices. These projects include Lead-to-Cash (LTC); Integrated Service Delivery (ISD); national planning, coordinating, and scheduling; and Consistency of Inventory Accounts and Goods (CIAG).

We will continue to strengthen our integrated transformations pilot project in Germany and extend it to other selected countries once the initial results have been verified. The target of our management transformations is to achieve "complete integration within two years" in the ICT infrastructure network business, and to lay the foundation for achieving CIAG within three years and the "Five Ones" within five years. As a result, we will be able to improve the operating capabilities of field organizations and increase the company's overall operational efficiency.

Stepping up efforts to safeguard cyber security and user privacy

Network coverage is now wider than ever. Customers require not only secure and reliable network, but also secure data storage. Therefore, protecting customers' information assets and user privacy is mission critical. No matter what the challenges might be, we must adopt every possible means to provide higher levels of assurance in order to ensure the secure and stable operations of customers' networks. We must make a solemn commitment to the public, governments, and customers regarding cyber security and user privacy protection, and honor this commitment as part of our corporate social responsibility. We will take all necessary measures to advance user privacy protection in accordance with local laws and regulations.

Improving "glocalized" operations

As an African saying goes, "If you want to walk fast, walk alone. If you want to walk far, walk together." As a global company that operates in over 170 countries and regions, we will fully integrate the best resources from around the world to build a global value chain, so that the value produced by each node of the value chain can be shared with customers around the world. Our localized operations will enable us to contribute to socioeconomic development by creating jobs and paying taxes in the countries and regions where we operate. Working jointly with local industry leaders, we will be able to fully combine the advantages of our global value chain with local innovation capabilities, enabling local innovations to reach the global market.

Our operations must comply with all local laws and regulations. We will strengthen communication with external stakeholders, including governments and the media, so they will understand that Huawei is a steady and responsible corporate citizen, an innovative enabler for the information society, and a collaborative industry contributor.

Building an attractive career platform for outstanding talent to create and share value

In 2014, to strive for excellence, we raised salaries and incentives for operational units in the field and high-performing employees. We fully implemented the "Contribute and Share" mechanism for annual bonus. Regarding long-term incentives, we rolled out the Time-based Unit Plan (TUP) globally so that all outstanding employees, especially those at the junior and middle levels, could share in more of the benefits of the company's medium-to-long-term development.

In 2015, we will continue to incentivize performance. We will step up efforts to provide more differentiated and targeted incentives to better motivate employees. While increasing monetary incentives, we will further extend the range of our non-monetary incentives, including awards such as "Whiz Kids" and "Future Stars".

We must provide high-performing employees with access to fast-track promotions, with regard to both positions and job levels, so that they get more development opportunities and rewards.

Opportunities and rewards will also be used to attract talented people, including outstanding former employees, to join our team. Mechanisms must be put in place to ensure outstanding people can be brought in, engaged and retained. We will continue to care for employee health and happiness, with more focus on their overall wellbeing. We will also continue to build a world-class workplace, with improved recreation and dining facilities.

A Better Connected World is awaiting us. A fully-connected future will produce a far-reaching impact on every individual, organization, and industry. To create and maintain connection, humanity has always and will continue to overcome the limits of time and space. This eternal drive is deeply-rooted in our need for emotional engagement, and has developed through the rational pursuit of greater efficiency.

We are lucky to be at the forefront of this human pursuit. We have already helped most people on this planet to connect with eatch other. We will enable broader connections between people and things In the future. At the best of times, being the enabler of this Better Connected World is the ideal role for Huawei.

Remaining united, focusing on strategy, and striving for open cooperation! Let's join our hands to fulfill our destiny!

The wind is rising and our sails are full. Now is the time to win!

Again, best wishes to you all and Happy New Year!

December 31, 2014