Huawei’s Secret Weapon: IP Licensing

• Huawei’s IP strategy drove 34% revenue growth this year
• A counterintuitive move by CEO Ren Zhengfei in 2022 is still paying off
• Huawei has ushered in a new era of IP collaboration among the world’s largest vendors

2022 was a tough year for Huawei. As the US government slammed the company with a new wave of tech sanctions, profits fell 69% and analysts were suddenly pessimistic about its prospects.

Fast-forward to today and those problems seem a distant memory. Huawei recently reported a 34% jump in revenue to $58.6 billion for the first half of 2024 and is now almost a de facto choice for advanced telecom infrastructure in Africa, the Middle East and Latin America.

A lesser-known and important factor that has contributed to the turnaround is Huawei’s intellectual property (IP) strategy.

In 2022, as Huawei was struggling, Huawei founder and CEO Ren Zhengfei made what seemed like a counterintuitive decision to many at the time. He ordered his company to open up its patent library and license its most closely guarded technologies—often for the first time.

It was a move that paid off handsomely: not only did it generate significant revenue for the company, but more importantly it ushered in a new era of collaboration between major technology companies around the world.

In the past 12 months alone, Huawei has published 36,000 new patents and signed 40 patent licensing agreements with companies like Xiaomi, Amazon, VIVO, Sharp and Ericsson, enabling even broader use of the technology worldwide (probably not the outcome Secretary of State Mike Pompeo had in mind when he drafted the US sanctions package).

I spoke to Alan Fan, the director behind Huawei’s IP initiatives, about how patents are not only at the heart of the telecom industry, but also of Huawei.

Steve Saunders: Alan, thanks for agreeing to this interview. I’ve been wanting to hear your perspective on the IP licensing landscape for a while, particularly how it’s evolving in the age 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 telecoms sector, but I think there are two key changes that are worth noting. Firstly, licensing is becoming more versatile and expansive. Previously it was mainly about handsets, but now we are seeing licensing for a wider range of devices such as IoT and Wi-Fi, as well as services such as streaming.

Saunders: That makes sense. We are seeing more connected devices than ever before and the technology is evolving rapidly.

Fan: Exactly. And the second big change is how companies approach 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, which makes litigation inefficient. We’re seeing more negotiated and brokered deals, especially in these new areas.

Saunders: Has that meant you had to expand your team at Huawei to cover all these new areas?

Fan: You know, I’d like to hire more people, but business is… well, let’s just say it’s not an easy time. We’re focused on not laying anyone off.

Saunders: Rightly so. Your team does have a good reputation.

Fan: We do what we can. And to be honest, a lot of these new areas, like AI, are not really active in licensing. (Our focus) is more on the core standards-based patents for communications technologies, especially at the big companies. AI is different because a lot of companies don’t even file patents for it.

Saunders: What about your portfolio? Huawei has a huge R&D operation, the largest in the world. How many of your patents are licensed versus internally developed?

Fan: We are the inventors of the majority of our patents. Only a very small portion are 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 are required to license those standard-essential patents.

Saunders: So you’re telling me that in a sector where there has been so much litigation, there is a ‘peaceful kingdom’ of IP licensing beneath the surface?

Fan: That’s absolutely right. And the geopolitical issues that have affected Huawei haven’t really affected our licensing business. The patents are public, the processes are public, and we’re working with companies around the world on standards, even in the US.

Saunders: That’s a powerful statement. It shows that despite all the political commotion, the communications industry is still doing the work that needs to be done. I’m curious about the profitability of your business. I spoke to Nokia and they say their IP and licensing division is hugely profitable, the engine room of their business. How does that compare to Huawei?

Fan: It is 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 is less than some other companies, like Nokia. We also take a less aggressive stance on pricing than they do.

Saunders: So for you it’s more of a legal and compliance function than a separate business unit?

Fan: That’s a good way to put it. Huawei’s approach is different from Ericsson’s and Nokia’s, and that’s an important part of the story. But $560 million is not an insignificant amount. It’s still an important revenue stream for us.