Thanks to the fast development of the information, communications and technology (ICT) sector and the dotcom boom of the early 2000’s, the technology digital economy now plays a key role in the gross domestic product (GDP) of China. Several domestic tech champions that emerged in that period, such as Alibaba, Baidu, Huawei and Tencent, have become global leaders and are now setting up to drive the sector agenda, leading in fields like artificial intelligence, drones, IoT and autonomous vehicles. A case in point is Huawei, which recently held its Global Analyst Summit 2022 in Shenzhen, China, where it presented a compelling and ambitious strategic plan for the next decade, which is synthesized in its ‘Intelligent World 2030’ report.
The company did not only establish its key strategic focus areas for the next decade, such as AI, digitalization of healthcare, transportation and energy, but also offered two interesting and encouraging conclusions or recommendations. Firstly, Huawei believes that for the broader industry to achieve its lofty goals, collaboration across supply chains, competitors and regulators is an imperative. Secondly, the company also believes that industry digitalization has the potential to accelerate the development of low carbon technologies. At first glance, this would seem to controversially go against the general view that the broad adoption of technologies such as cloud computing and AI are actually accelerating energy consumption and thus making carbon reduction targets more challenging.
Overall, a very ambitious and optimistic view of the next decade which both peers and partners should heed and is worth exploring further below.
Huawei’s core competencies support long-term plan
Interestingly, Huawei has for some time been developing and expanding its portfolio of core competencies, which historically lay in telecommunications and IT services, but now have been gradually expanded to add cloud computing and artificial intelligence, including semiconductors. We believe these broader competencies, particularly cloud computing and AI, position the firm strongly in several of the verticals identified in the intelligent world vision report.
That said, it is worth noting that the company is showing a much larger strategic ambition for the current decade than for the prior one, when the focus was simply to build a fully connected and intelligent world. In our view, potential challenges include its ability to successfully garner expertise in industries that have not historically been its core competencies, such as artificial intelligence and cloud computing. However, only those who reach for the stars ever deliver great achievements.
Innovative view on the digitization vs carbon emission reduction trade-off
As noted, Huawei believes that industry digitization has the potential to accelerate the development of low carbon technologies. At first glance this could be seen as controversial as the more consensual view would be that increasing adoption of technologies such as cloud computing and AI require more data center capacity, in turn driving more energy consumption, thus making carbon reduction targets more challenging. However, a closer look at the data supports the belief of mutual reinforcement between greener development and industry digitalization.
For one, Huawei is developing specific technologies aimed at materially improving the energy efficiency of its data centers in various domains, such as the extreme-large antenna array (ELAA) or the cell photonic switching technologies to improve 5G coverage and energy efficiency, as well as high degree optical cross-connect multicast switching, intelligent hibernation and energy saving routers to reduce data center energy consumption.
This allows two positive developments: i) the carbon footprint of information and communications technology (ICT) infrastructure will be kept under control despite the overall growth; and ii) further digitalization of many industries via the use of AI and IoT will allow significant reductions in their carbon footprint. According to the ‘#SMARTer2030’ report from the Global e-Sustainability Initiative (GeSI) by Accenture Strategy, the ICT industry’s own carbon footprint is expected to represent just 1.97% of global emissions by 2030, whereas the ICT industry will enable a 20% reduction in the global emissions across all industries.
Additionally, it could be also argued that as the ICT industry continues to expand and grow its energy consumption, engineering ingenuity will drive more innovation in low carbon ICTs. As noted, Huawei has already been focusing on the power efficiency of its network infrastructure equipment, as are many of its large peers as well as the public cloud providers.
Another key message that came from the company’s analyst summit is the need for collaboration across many dimensions, that is, not only the obvious area of supply chains but also competitors and regulators.
It is clear that complex and ambitious goals will require the combination of products and services from many vendors across jurisdictions, as no single vendor can do it in isolation. In turn, this needs common regulatory frameworks and significant trust between players and their regulators, particularly given the amount of data to be shared. Huawei extended its hand to competitors and suppliers at the recent Global Analyst Summit as it presented its Intelligent World 2030 plan.
Key underlying investment themes
Thematic investing focuses on predicting long-term trends, often at macro level, rather than specific companies or sectors, enabling investors to access structural, one-off shifts that can change an entire industry. Interestingly, among the key themes we have identified at GlobalData, there are several that Huawei has also highlighted in its ‘intelligent world’ vision, such as cloud computing, 5G, IoT, big data, artificial intelligence (AI), blockchain and ESG.
Indeed, it expects these technologies to disrupt and empower four key industries, namely telecommunications, information technology, energy and automotive; industries which in turn underpin the long term ‘intelligent world’ vision.
The envisioned key features of the communications networks of 2030 include seamless space-air-ground integrated coverage, harmonized communication and sensing (HCS) for new scenarios and applications, deterministic experience thanks to very low latencies, AI-native fully autonomous networks, security and trustworthiness, and greatly improved energy efficiency due to system-level innovation. To achieve these goals, the company will have to continue investing and leading in the aforementioned key themes such as 5G, cloud computing, IoT, AI and blockchain.
Artificial intelligence is a particularly interesting theme for Huawei, as it is being approached from multiple dimensions. From an enablement standpoint, the company’s growing cloud capabilities such as edge computing, as well as its very low latency networks, allow for increasingly complex and relevant use cases to be resolved using AI models. However, the company’s ambition is to also use AI at the services, networks and infrastructure levels, to make its communication networks fully autonomous,. It expects to take its communication networks from a partial autonomy (L2) in 2021 to full autonomy by 2030 (L5).
However, a theme that permeates the entire ‘Intelligent World’ vision is /greener development, which falls under the Environmental category within the ESG framework. This is very important to Huawei’s plan as it is central to the company’s aim of achieving the 17 sustainable development goals (SDGs) for 2030 which the United Nations (UN) set in 2015 as part of the 2030 Agenda for Sustainable Development. Indeed, Huawei’s efforts towards decarbonization and greener development support many of the SDGs, such as affordable and clean energy, industry, innovation and infrastructure, good health and well-being, sustainable cities and communities, responsible consumption and production, and climate action.
There is a mutual reinforcement between greener development and industry digitalization, which could be seen as a virtuous cycle. In order to achieve greener growth, ICT companies such as Huawei will invest in research and development to improve the energy efficiency of both their products, as well as entire industries such as energy and natural resources. This will very often involve further digitization as sensor data and industrial automation are combined with artificial intelligence to drive these efficiencies. While this may lead to an increase in the carbon footprint of the ICT industry itself, it will also lead to significant reductions in carbon emissions at many of the industries benefitting from this digitalization effort that more than offset the former.
Compelling use cases
We find several of the use cases or scenarios presented in the ‘Intelligent World 2030’ report quite compelling and inspiring. The report is extensive and explores many long-term opportunities, but the transportation, energy, healthcare and consumer (i.e., food, living spaces, cities) domains did strike a hopeful chord.
Huawei envisions a future of transportation which leverages the power of artificial intelligence (AI), Internet of Things (IoT), electric vehicles (EV), electric vertical take-off and landing (eVTOL) aircraft and green energy, to shift to a smart, low-carbon space-air-ground integrated transport system. Even today the combination of AI, IoT and EV already allows the replacement of highly contaminating public transport vehicles with a fleet of publicly owned electric robotaxis. If these vehicles can be made fully autonomous (i.e., Level 5), then they open the “mobile third space” opportunity, whereby people could either work or enjoy their free time while commuting. It is expected that if governments accelerate efforts to achieve global climate and energy goals, the worldwide EV fleet will reach 230 million vehicles by 2030, significantly reducing fossil fuel consumption. More ambitious goals include the use of eVTOL aircraft to further reduce transportation time and cost, but admittedly there is a longer path to readiness from an infrastructure and regulatory perspective in this case.
It is in the healthcare domain though where these future predictions become most attractive and inspiring. The broad use of biosensors feeding large AI models are expected to allow us to make “health computable”, letting people proactively manage their health, while shifting focus from treatment to prevention. Most importantly, personalized treatments and AI drug design and discovery will become a reality. That said, Huawei and its peers will have to find ways to allay concerns about patient privacy, given the amount of sensitive personal health information involved. It is likely that regulators will have to step in to set limits to what can and cannot, or should not, be done using AI. As such, it is very encouraging that Huawei has been at the forefront of these concerns and in 2019 already published a white paper, ‘Thinking Ahead About AI Security and Privacy Protection’ where it outlined its perspective and practices in AI security, privacy issues and related solutions, and proposed a shared responsibility model for AI security and privacy protection governance. Further, it has engaged with the European Commission’s decision to launch a pilot phase to develop ethical guidelines for Artificial Intelligence.
The consumer space, which includes domains such as food, living spaces and cities, is bound to experience a revolution, as a result of technologies such as precision farming, 3D printing of artificial food, living spaces technology transforming and automating our homes and cities including novel interactive experiences such as the metaverse, as well as some of the benefits already discussed in the transportation domain above. We believe Huawei is well positioned to participate in the living spaces and smart cities domains, thanks to its core competencies in telecommunications, AI and IoT.
Finally, it is in the energy domain where the company’s vision comes back to its fundamental belief that digitalization and green development mutually reinforce. Not only does the company expect renewables to account for 50% of all electricity generation globally by 2030, but also envisions the emergence of an “energy internet”, with digital technologies connecting generation-grid-load-storage, including virtual power plants and an energy cloud. Huawei has the in-house expertise to develop a core competency in this field and become a market leader in the design and supply of distributed energy gathering devices; distributed energy storage devices; and intelligent management software, all possibly AI driven. It is likely that governments will participate sponsoring and funding research and related initiatives as part of their long-term energy policies, which would provide a fertile ground for early participants like Huawei.
Ambition for a better future
While forecasting a decade ahead is always a difficult exercise fraught with risks, Huawei’s Intelligent World 2030 plan has the right mix of far-fetched ambition and down to earth realities to make it realistic, and provide a good roadmap for the industry. Given the challenging economic backdrop, it is a welcome optimistic look at the future. As noted, the company did not only establish its key strategic focus areas for the next decade, such as AI, healthcare, transportation and energy, but also offered two interesting and encouraging conclusions or recommendations. Firstly, that for the industry to achieve these lofty goals, collaboration across supply chains, competitors and regulators is an imperative. Secondly, industry digitalization has the potential to accelerate the development of low carbon technologies.