Unease grows as Chinese telecom behemoth gains foothold in U.S.
Sweden, and with Chinese government backing, it has sewn up major deals in Asia, Africa, and Latin America. In Europe, Huawei has outmaneuvered Ericsson to supply equipment to big carriers (but see “Worries in the U.K. over Chinese-made phone equipment,” 12 June 2009 HSNW).
Despite those successes, Huawei has struggled to break into the United States market, largely because of the security concerns and accusations of intellectual property theft and corporate espionage.
The company has repeatedly been linked to the People’s Liberation Army of China. Over the last decade, Huawei has been sued in the United States by two of its major competitors, Cisco Systems and Motorola, over accusations that it stole software designs and infringed on patents.
Cisco settled its suit with Huawei soon after filing it. In court documents filed in a lawsuit last summer, Motorola claimed that a group of Chinese-born Motorola engineers developed contacts with Huawei’s founder and then, between about 2003 and 2007, conspired to steal technology from Motorola by way of a dummy corporation they had set up outside the company.
Markoff and Barboza write that the national security issue has been bubbling up for some time. In a letter in August, a group of Republican senators wrote to the heads of four federal agencies asking questions about the risks of Huawei’s entering a deal with Sprint, whose customers include the United States military and law enforcement agencies.
The senators, who are seeking a stringent government review of Huawei, said they were troubled by the company’s history, including evidence it had supplied communications equipment to Iran and Iraq during Sad
“We are concerned,” the senators wrote, “that Huawei’s position as a supplier of Sprint Nextel could create substantial risk for U.S. corporations and possibly undermine U.S. national security.”
The reservations about Huawei extend to other countries. In Europe, some competitors are now complaining about so-called subsidies that Huawei receives from the Chinese government. And in India, there are worries that Huawei networks could pose security risks.
No one denies that Huawei has an impressive R&D foundation. Huawei spends heavily on research and development. Chinese companies are generally weak in R.&D., but Huawei has seventeen research centers around the world, including in Dallas, Moscow and Bangalore, India, and most recently in Santa Clara.
Of the company’s 96,000 employees, nearly half are engaged in research and development. In May, Huawei opened a stunning $340 million research center in Shanghai that it says will eventually house 8,000 engineers.
In 2008, worries about national security and China’s weak protection of intellectual property forced Huawei to drop its $2.2 billion joint bid with the American firm Bain Capital to acquire 3Com, the American networking company (“Bain’s effort to acquire 3Com on verge of collapse,” 21 February 2008 HSNW). Huawei also failed in other bids this year to acquire the wireless network division of Motorola as well as 2Wire, an American maker of broadband Internet software, according to people familiar with those deals (and see “NSA threatened AT&T over buying phone gear from China,” 11 October 2010 HSNW).
Analysts told Markoff and Barboza that those bids collapsed because both Motorola and 2Wire were told that Washington was likely to block any deals.
Peter J. Williamson, a professor of business at Cambridge University, said that while some continued to be bothered by Huawei’s origins, its technological prowess was increasingly hard to ignore. “The hardest market to crack is the U.S.,” he said. “But they’ve cracked Europe. And if they can work with Vodafone, one of the biggest carriers in the world, they can work with anyone.”
