Betting the Farm on R&D: The C&C08 Switch, Huawei's Life-or-Death Gamble

Prologue: The Agent's "Weaning" Crisis

Winter 1991, Shenzhen. The atmosphere inside Huawei's office was even heavier than the cold wind outside.

By then, by acting as an agent for Hong Kong's Hongnian company selling PBX switches, Huawei had grown from a small workshop on the verge of collapse into a star enterprise with annual sales exceeding 100 million yuan. The employees had just moved into a spacious, bright new office, their faces beaming with optimism for the future.

However, an invisible crisis was quietly approaching. Ren Zhengfei received a chilling piece of news from his Hong Kong partner: Huawei's sales prowess was so strong that it was threatening the partner's interests in other regions, and they were prepared to unilaterally tear up the agency contract at any time.

The news was like a bucket of ice water poured over everyone's heads. It meant that Huawei could be "weaned" off its supply at any moment, and the cash flow business on which the company's survival depended would collapse in an instant.

An internal meeting descended into chaos. Some argued for quickly finding a new brand to represent, others suggested cutting prices to boost sales, and some even proposed switching to the real estate business.

Ren Zhengfei said nothing, chain-smoking one cigarette after another. Through the haze, his weathered face looked exceptionally grim. Finally, he crushed a cigarette butt into the ashtray, stood up, and in a tone that allowed no argument, announced a decision that made everyone gasp:

"We're not looking for a new agency. We're going to do our own R&D and make our own switches!"

The conference room fell silent. Everyone was stunned by this "insane" idea.

In-house R&D? Easier said than done. At that time, the Chinese telecom market was dominated by seven countries and eight systems—giants like Japan's NEC and Fujitsu, America's Lucent, Canada's Nortel, and Sweden's Ericsson. These were world-class telecommunications behemoths with technological barriers as high as mountains. What could Huawei, a "middleman" who got its start by reselling, possibly do to compete with them?

Moreover, R&D required a bottomless pit of funding. If they failed, Huawei would not only burn through all its profits but also accumulate heavy debt, leading directly to bankruptcy.

This was not a business decision; it was a high-stakes gamble with the company's entire fortune on the line. The stake was Huawei's very survival.

Act I: The "Lobbying" at Tsinghua

Ren Zhengfei's mind was made up. He pinned all his hopes on one person—Guo Ping, a master's graduate from Tsinghua University.

Guo Ping was working for a company in Shenzhen at the time and was one of the country's top telecommunications technology experts. To persuade him to join Huawei, Ren Zhengfei visited him three times, practically setting up camp outside Guo Ping's office.

He didn't talk to Guo about salary or position, but about dreams.

"Old Guo, China's own communications industry can't be strangled by foreigners forever," Ren Zhengfei said, his eyes shining. "Someone from our generation has to step up and do something. Even if we don't succeed, we have to pave a way for the next generation."

These words deeply moved the patriotic intellectual within Guo Ping. Eventually, won over by Ren Zhengfei's sincerity and determination, he decided to give up his lucrative position and, along with his team, board Huawei's precarious "little sampan."

Guo Ping's arrival ignited the first spark of Huawei's in-house R&D. Soon after, a host of top technical talents like Zheng Baoyong and Li Yinan, attracted by the blueprint Ren painted, flocked to join the company.

Ren Zhengfei provided the R&D team with the best conditions he could afford. He squeezed money from the company's meager profits to buy a small program-controlled switch for everyone to disassemble and study. To ensure they could work without worry, he even cooked for them himself.

The days of R&D were tedious and harsh. Dozens of technicians were crammed into a large open space of a few hundred square meters, eating and sleeping on site. The office floor was covered with camp beds and quilts. When hungry, they ate instant noodles; when tired, they slept on the floor for a while and got back to work upon waking. The entire office was lit 24 hours a day, filled with the sounds of keyboards clacking and circuit boards being soldered.

They named their first product "HJD48," a small-capacity user switch. Like a group of devout believers, they sought to create their own "miracle" from scratch in the world of technology.

Act II: "Encirclement of the Cities from the Countryside"

After more than a year of struggle, in 1992, Huawei's first switch with its own intellectual property rights, the BH01, was successfully developed. Although it was only a small analog switch, its birth marked Huawei's official transformation from a sales agent to an R&D-oriented enterprise.

However, the real test had just begun. How could Huawei's switch break through the iron wall of the "seven countries, eight systems"?

Ren Zhengfei once again displayed his unique strategic vision. He chose not to go head-to-head with the giants in the major cities but instead set his sights on the vast rural market.

At the time, foreign telecom giants looked down on the "barren" rural market, considering it low-profit with high maintenance costs. This gave Huawei a perfect opportunity for a breakthrough. Ren Zhengfei proposed the famous "encircling the cities from the countryside" strategy.

To conquer these markets, Huawei's sales team showed wolf-like ferocity. They carried heavy equipment, rode bumpy tractors, and ventured into the most remote towns. They would wait outside a client's office for days for an order; they would personally climb telephone poles to lay lines to win a client's trust.

It was in this "testing ground" of the rural market that Huawei's products gained valuable practical experience. The technical team rapidly iterated and optimized the products based on feedback from the front lines.

Meanwhile, Ren Zhengfei made an even bolder decision: to launch the development of a 10,000-line digital program-controlled switch, codenamed "C&C08." This was the real "killer app" he intended to use to challenge the international giants.

For this project, Ren Zhengfei practically bet the farm. He mortgaged all the company's funds, even his own property. He told the R&D team, "If this R&D fails, you can find other jobs. As for me, I can only jump off this building."

Under this immense "succeed or die" pressure, the entire C&C08 R&D team erupted with astonishing combat effectiveness. Led by the "genius boy" Li Yinan, hundreds of engineers worked day and night on technical breakthroughs.

Epilogue: The "Perilous Leap" in Yiwu

At the end of 1993, the C&C08 switch was finally developed. Like a newborn baby, it was the culmination of everyone's hard work, but whether its performance was stable and whether it could withstand the market's test remained a huge unknown.

The first to take a chance was the Yiwu Telecom Bureau in Zhejiang. They gave Huawei an opportunity on a trial basis.

After the equipment was transported to Yiwu, problems arose one after another. The switch frequently failed during testing, calls couldn't be connected, or lines got crossed. The leaders of the telecom bureau were livid and repeatedly threatened to return the product.

Ren Zhengfei personally led the company's core R&D team to Yiwu. They set up camp on the floor of the machine room to solve problems on site. During the day, they worked with the telecom bureau's staff to troubleshoot; at night, they worked through the night modifying code and optimizing software.

After more than a month of hard work, the C&C08 switch finally stabilized. When the first clear phone call was made from Yiwu, the Huawei employees present, these usually stoic engineers, were moved to tears.

The success of the C&C08 in Yiwu became the turning point in Huawei's destiny. With a price two-thirds lower than similar foreign products and performance that was just as good, it drove a sharp knife into the heart of the "seven countries, eight systems."

From then on, Huawei was unstoppable. The C&C08 switch quickly captured the national market. By 1995, Huawei's sales reached a staggering 1.5 billion yuan, establishing its dominance in the domestic telecommunications equipment market.

Ren Zhengfei had won the gamble he started in 1991. He not only secured Huawei's right to survive but also carved out a thorny path for China's own communications industry. Looking back at those years of betting the farm on R&D, it was that do-or-die courage that forged Huawei's subsequent legend.

Key Takeaways

1. Core Technology is a Lifeline: Huawei's experience proves that relying on others in key technological areas is like placing your destiny in their hands. Only by mastering core in-house R&D capabilities can a company have a true voice and the right to exist.
2. Differentiated Market Entry: When facing powerful competitors, choosing to break through in the "marginal markets" they ignore (like rural areas) is a clever competitive strategy. Accumulating experience and refining products in these markets can buy time and space for future battles in core markets.
3. The Resolve to Succeed or Die: Ren Zhengfei's "succeed or die" determination was key to driving the entire team to break through their limits. Great technological innovation often requires a leader with the boldness and courage to bet everything.