• The transforming power of artificial intelligence is of no value unless user data is protected, George Zhao, CEO of Chinese smartphone company Honor, told CNBC in an exclusive interview.
• His comments come as Apple this month announced it will start rolling out personalized AI tools on certain devices in the U.S. this fall.
• "We say user data doesn't leave [the device]," Zhao said. "This is a principle we adhere to."

HANGZHOU, China — The transforming power of artificial intelligence is of no value unless user data is protected, CEO of Chinese smartphone company Honor, George Zhao, told CNBC in an exclusive interview on Thursday.

His comments come as Apple this month announced it will start rolling out personalized AI tools on certain devices in the U.S. this fall.

Honor already integrates some AI functions, such as enabling users to open text messages and other notifications just by looking at them, or eliminating copy-paste steps by directly linking Yelp-like apps to navigation or ride-hailing apps.

This week at Mobile World Congress in Shanghai, Honor unveiled new AI tools for detecting the use of deepfakes in videos, and for simulating lenses that can decrease myopia during long hours of screen usage.

Zhao emphasized that Honor's approach is to keep AI operations involving personal data limited to the smartphone. It's also known as on-device AI, and stands in contrast with AI tools that tap cloud computing to operate.

"Without data security and user privacy protection, AI will become worthless," Zhao said in Mandarin, translated by CNBC. "This has always been one of our value propositions."

"We say user data doesn't leave [the device]," Zhao said. "This is a principle we adhere to."

Apple Intelligence, the iPhone company's AI product, claims that it uses on-device processing and draws on "server-based models" for more complex requests. Apple said its new "Private Cloud Compute" never stores user data.

Honor says its on-device AI is self-developed, and the company is working with Baidu and Google Cloud for some other AI features.

"Overall, my view is that AI's development to date has two directions," Zhao said. "Network [cloud] AI has become more and more powerful. But I believe on-device AI, in its capabilities and empowerment of consumers, will become more and more intimate, more and more understanding."

"It will give consumers more support and help them interact with the future AI world," he added.

Zhao pointed out that many generative AI applications, such as from OpenAI's ChatGPT, require large amounts of computing power well beyond the battery capability of a single smartphone.

That means they need to use the cloud, which raises questions about the security of data transfer.

Balancing AI capabilities with energy usage and data privacy is a "huge challenge" for manufacturers, Zhao said.

He said a system collecting lots of user data to deliver more personalized features becomes a "stronger" object compared to the individual using the system.

"In the future development of smartphones, our goal is that the individual becomes stronger," Zhao said.

"When an object becomes stronger, this will reveal the smallness of the individual in its presence. I believe mobile end devices need to empower and enable individuals."

Honor's Magic V2 folding phone, which launched in China last summer and in Europe earlier this year, won the "Best Smartphone in Asia Award" at the Shanghai MWC this week.

The Magic V2 folds up nearly as thin as an iPhone.

Honor is set to release the Magic V3 in July with the company's latest AI functions.

When asked whether the new foldable would be even thinner, Zhao only said, "Of course, we need to challenge ourselves, right?"