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Huawei's Open Letter to the US

Light Reading
News Analysis
Light Reading
2/24/2011
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On Thursday, Huawei Technologies Co. Ltd. sent out an open letter following its aborted acquisition of 3Leaf. (See Huawei Sheds 3Leaf.)

The letter discusses that situation, but it also goes much further, addressing all the major concerns that have tailed the company in the United States. That would include Huawei's alleged ties to the Chinese military, its funding and its previous intellectual property spats, including the famous one with Cisco Systems Inc. (Nasdaq: CSCO).

In short, Huawei has finally decided to take a stand against what officials believe is an unfair perception of the company.

Here at Light Reading, we felt it was worth presenting the entire 2,000-word letter. Especially the last paragraph. Enjoy.

— The Staff, Light Reading

Huawei Open Letter:
Author: Ken Hu,
Deputy Chairman of Huawei Technologies, Chairman of Huawei USA
We would like to provide the basic facts behind the recent 3Leaf matter that has been the subject of much attention and discussion about Huawei. These facts will not only help understand the real situation behind the proposed acquisition, but also Huawei’s position on this matter. They will also clarify some long-standing and untrue rumors and allegations regarding Huawei.

Futurewei, Huawei's U.S. subsidiary, purchased certain assets from 3Leaf, an insolvent technology start-up located in Santa Clara, California, in May and July 2010, when 3Leaf was ceasing its operations and no other buyers for its intellectual property were forthcoming. Huawei submitted a timely request to the Bureau of Industry and Security at the Department of Commerce in advance of completing the purchase in May and the Department of Commerce certified that no license was required to export the 3Leaf technology. After learning that CFIUS was interested in the 3Leaf transaction, Huawei submitted draft and formal voluntary filings to initiate a CFIUS review of the transaction in November 2010.

On February 11, 2011, CFIUS formally notified Huawei that it recommended that Huawei withdraw its notice under terms dictated by CFIUS. We originally decided to decline the offer with an intention to go through all of the procedures to reveal the truth about Huawei. However, the significant impact and attention that this transaction has caused were not what we intended, and on February 18, we decided to accept the recommendation of CFIUS to withdraw our application to acquire specific assets of 3Leaf.

The United States of America is a great country and one for which Huawei has always had the utmost respect. The values of democracy, freedom, rule of law and human rights in the U.S. are the very values that we at Huawei respect, advocate, and live by. As a company, we are learning much from our close links with the American people. In his inauguration speech, President Obama said, "On this day, we gather because we have chosen hope over fear, unity of purpose over conflict and discord. On this day, we come to proclaim an end to the petty grievances and false promises, the recriminations and worn-out dogmas that for far too long have strangled our politics." We share that vision, and it is the foundation on which we have sought to build our cooperation with American firms as we have invested and grown our business in the United States over the past decade.

Who We Are
Huawei Technologies, founded in 1987 in Shenzhen, China, is a private company owned entirely by its employees. We are currently the second largest telecommunications equipment provider in the world.

Huawei is committed to being a long-term investor in the United States where we already have over 1,000 U.S. employees. In 2010, we purchased products and services from American companies totaling some US$6.1 billion. Our investment in research and development activities in the United States has grown by an average of 66% per annum and it reached US$62 million in 2010. We have long been offering innovative products and services to our customers in the United States and we have always been a responsible investor, employer, taxpayer and corporate citizen.

Facts versus Misperceptions
Unfortunately, over the past 10 years, as we have been investing in the United States, we have encountered a number of misperceptions that some hold about Huawei. These include unfounded and unproven claims of "close connections with the Chinese military," "disputes over intellectual property rights," "allegations of financial support from the Chinese government," and "threats to the national security of the United States".

These falsehoods have had a significant and negative impact on our business activity and, as such, they must be addressed as part of our effort to correct the record. First, the allegation of military ties rests on nothing but the fact that Huawei’s founder and CEO, Mr. Ren Zhengfei, once served in the People’s Liberation Army. Born on October 25, 1944 into a rural family where both parents were schoolteachers, Mr. Ren spent his primary and middle school years in a remote mountainous town in Guizhou Province, and studied at Chongqing Institute of Civil Engineering and Architecture, where he graduated in 1963. He was employed in civil engineering until 1974 when he joined the military’s Engineering Corps as a soldier tasked with building the then French-imported Liao Yang Chemical Fiber Factory. From there, Mr. Ren was promoted to Technician, Engineer and Deputy Director, a deputy-regimental-chief-equivalent professional role that had no military rank. Because of his outstanding performance, Mr. Ren was invited to the National Science Conference in 1978 and the National Congress of the Communist Party of China in 1982.

After retiring from the army in 1983, when China’s central government disbanded the entire Engineering Corps, Mr. Ren became dissatisfied with his job at the logistics service base of the Shenzhen South Sea Oil Corporation and decided to establish Huawei with RMB 21,000 (about US$2,500) in capital in 1987. He became the President of Huawei in 1988 and has held the title ever since.

It is a matter of fact that Mr. Ren is just one of the many CEOs around the world who have served in the military, and it is also a matter of fact that Huawei has only offered telecommunications equipment that is in line with civil standards. It is also factual to say that no one has ever offered any evidence that Huawei has been involved in any military technologies at any time.

The second issue is about intellectual property rights. Since our establishment, Huawei has respected and protected the rights of all intellectual property holders while vigorously defending our own intellectual property rights. We have applied for 49,040 patents globally and have been granted 17,765 to date. In addition to our own innovations, we buy access to other patent holders’ technologies through cross-licenses. In 2010, Huawei paid western companies US$222 million in licensing fees. Of that total, US$175 million was paid to American firms. For example, over the years we have paid U.S. company Qualcomm more than US$600 million in fees related to their intellectual property. The fact that Cisco withdrew the lawsuit it filed against Huawei in 2003 regarding allegations of intellectual property rights infringement further vindicates Huawei’s position in that matter and supports our position that we are only engaged in legitimate business practices. We learned from that experience that while disputes may arise in the course of business, they can be settled properly through bilateral negotiations. With respect to the claim that Huawei receives financial support from the Chinese government, the truth is that we operate like any other private corporation. Our company is financed through capital from our shareholders and through normal commercial loans. In addition, Huawei is headquartered in the Shenzhen Special Economic Zone, so our company has always grown within a market economy.

Like many other companies that operate in China, Huawei receives tax incentives provided by the Chinese government to high-tech enterprises and support for some of our research and development initiatives. This is similar to tax incentives offered by American government agencies to U.S. companies. In 2010, Huawei received a total of RMB 593 million (USD$89.75 million) of financial support from the Chinese government for our research and development activities. All of this is consistent with financial support that is provided to normal businesses in China and in many other countries, including the United States.

The credit lines made available through Huawei by China’s commercial banks are actually designated for Huawei’s customers, not Huawei. As an intermediary, Huawei recommends loans to our customers and, once taken, our customers are responsible for paying the principle and interest directly to those banks. It is important to note that these types of loans only represented about 9% of Huawei’s annual income in 2010, a level that is similar to our industry peers. In 2004, the China Development Bank agreed to offer a US$10 billion buyer’s credit line to our customers and the amount was subsequently increased to US$30 billion in 2009. As of today, US$10 billion has been loaned to our customers from the China Development Bank.

The allegation that Huawei somehow poses a threat to the national security of the United States has centered on a mistaken belief that our company can use our technology to steal confidential information in the United States or launch network attacks on entities in the U.S at a specific time. There is no evidence that Huawei has violated any security rules. Not only that, in the United States we hire independent third-party security companies, such as EWA, to audit our products in order to certify the safety and reliability of the products at the source code level. In addition, Huawei has established a "trusted delivery" model to protect the security of networks we supply.

If the United States government has any real concerns of this nature about Huawei we would like to clearly understand those concerns, and whether they relate to the past or future development of our company .We believe we can work closely with the United States government to address any concerns and we will certainly comply with any additional security requirements. We also remain open to any investigation deemed necessary by American authorities and we will continue to cooperate transparently with all government agencies.

As a privately-owned civil communications equipment provider, we were the first company to establish an end-to-end network security system globally. We have been actively tackling challenges of network security through partnerships with network security regulators throughout the world. We believe that security problems will become more and more significant for everyone in our industry as the amount of data continues to grow rapidly. We are committed to working together with governments in all countries to take all necessary measures to protect information security.

Former American president Abraham Lincoln once said, "Character is like a tree and reputation like its shadow". In recent years, misperceptions and rumors have been the shadow of Huawei, affecting Huawei’s reputation and, we believe, the United States government’s judgment of Huawei. We sincerely hope that the United States government will address this issue by carrying out a formal investigation of any doubts it may have about Huawei in an effort to reach a clear and accurate conclusion.

The American telecommunications market is the largest in the world and Huawei has been striving to demonstrate our capabilities with a view to becoming a key contributor in this important market. However, unfounded accusations have jeopardized our business activities, with many false claims driven by competitive interests, which we understand because competition can be difficult. Huawei’s world-leading wireless broadband technologies can bring American telecom operators, as well as the general public, more advanced technologies and higher network speeds at a lower price. With the structure of wireless base stations becoming simpler, they do not pose any threat to national security, just as mobile phones do not pose risks to national security. While we can commit to not selling any products that concern American operators, we sincerely request guidance from the United States government on the scope of such restricted products and the duration of the related restrictions, as certain technologies that may seem crucial today will lose their leadership and sophistication over time. A full and permanent restriction is way too costly and unfair to any company.

We sincerely hope that the United States government will carry out a formal investigation on any concerns it may have about Huawei. The United States is an advocate for democracy, freedom, rule of law, and human rights. The United States government has demonstrated its efficiency in management, fairness and impartiality and we have been impressed by that ever since we made our first investment in this country some 10 years ago. We have faith in the fairness and justness of the United States and we believe the results of any thorough government investigation will prove that Huawei is a normal commercial institution and nothing more.

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Option B
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Option B,
User Rank: Light Beer
12/5/2012 | 5:08:48 PM
re: Huawei's Open Letter to the US


How many big companies in US have already deals with Huawei/ZTE?


Could they keep it secret for long?

eurichardson
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eurichardson,
User Rank: Light Bulb
12/5/2012 | 5:11:15 PM
re: Huawei's Open Letter to the US


This letter is hilarious. Thank you, Mr. Hu.


There are quotes from Abraham Lincoln and Obama, mixed in with a promise to promote human rights in the US, and a call to choose hope over fear.


Thoroughly enjoyed it. Please keep it coming.


Cheers

DCITDave
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DCITDave,
User Rank: Light Beer
12/5/2012 | 5:11:25 PM
re: Huawei's Open Letter to the US


Hey guys,


Keep the posts civil,please. You can be snarky, mean, sarcastic and so on, but let's steer clear of threats and wishing anyone ill will. Let that to the professionals.


As you were.


ph

Telecomguy0704
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Telecomguy0704,
User Rank: Light Beer
12/5/2012 | 5:11:27 PM
re: Huawei's Open Letter to the US


Huawei/ZTE is a PRIVATE company in China. Basically, it cannot act in its own self-interest; without the Chinese Communist Party interferences.

Here is the proof.

http://www.chinadaily.com.cn/china/2007-07/10/content_6142022.htm

“Primary Party organizations are formed in China's mainland enterprises, rural areas, government departments, schools, scientific research institutes, communities, mass organizations, intermediaries, companies of the People's Liberation Army and other basic units, where there are at least three full Party members.”

How much more proof do we need, to show their 4G/LTE equipments will be good for our national security?



"Ask Huawei what its doing under subsidiary or third party partners with European software engineers in Shenzen area and not limited to that area?
Ask Foxcon what she is doing with the firmware that its embedded in different boards?
Happy outsourcing US and EU"


paolo.franzoi
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paolo.franzoi,
User Rank: Light Sabre
12/5/2012 | 5:11:33 PM
re: Huawei's Open Letter to the US


 


None of those was government funded. Government funding means that the money for the research was given by the government in part or in whole.  If you are saying that Government being a user/supporter/builder in response to a technology means that ALL technology was government funded then I guess even FIRE was government funded since I am sure some guy showed some other guy how to make Fire.


 


seven


 

paolo.franzoi
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paolo.franzoi,
User Rank: Light Sabre
12/5/2012 | 5:11:33 PM
re: Huawei's Open Letter to the US


Government research funding is very recent.  Think of the following inventions:


1 - The Light Bulb


2 - The Internal Combustion Engine


3 - The Airplane


4 - Television


5 - The Laser


6 - The Integrated Circuit


Even post-WWII, I would argue most technological advances are NOT funded by government research.  WWI was really the first Technology War and WWII really drove lots of research into government (The Manhattan Project being the key). 


seven


 

stratboydave
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stratboydave,
User Rank: Light Beer
12/5/2012 | 5:11:33 PM
re: Huawei's Open Letter to the US


Intersting, so every single item in your list was funded, or propogated by the government. The light bulb! Government funded, and I don't mean by giving Edison a bunch of seed money, there's other ways to fund, like buying a bunch of it, giving right of ways to companies so they can lay the wires etc. That's why we will never really have a truly cometitive telecommunications market - the wires are all owned by the Tier 1 carriers, and the right of ways. Some folks tried to get around this by laying fiber along RR tracks during the dotcom boom - they're are all out of business or acquired.


Internal Combustion Engine - where would the ICE be without roads? All provided by the government. Ongoing research - government funded. Even majority owned by the goverment recently...and the DoD bought tons of them for military purposes thereby kickstarting the industry. I don't think it would have been very successful without some government involvement.


The airplane, seriously? We'd still be flying biplanes and landing on dirt runways if it wasn't for the DoD.


Television, another DUH...


Laser? Invented in a lab funded at least in part by the government for government applications intially, same with fiber optics... Sometimes the government "funds" technology by purchasing it in the early adoptor phase to keep development moving. VoIP would be a good example. Back in the early 2000's the government was the only one buying this stuff in bulk, and by doing so financing continued research and market momentum. And keeping Cisco rolling along even during the dotcom bust.


Integrated Circuit... go back and read your history books, government funded. The US government has it's fingers in every new technology out there way before we even hear about it.


Sure the government is filled with a lot of dead wood and waste but it's also got some of the smartest people on the planet working on research projects at universities that they fund, and have first crack at, and get to decide if they want to release to the public. Case in point, the DoD has been developing and testing umanned flight vehicles/drones for at least 15 years if not longer. When did we first hear about them? Stealth Bomber? Worked on that for 20 years before we even knew it existed... and there's a whole lot more that we won't hear about, ever.

stratboydave
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stratboydave,
User Rank: Light Beer
12/5/2012 | 5:11:33 PM
re: Huawei's Open Letter to the US


LoL, you are correct that the goverment doesn't actually invent any technology but they sure fund a whole bunch. Almost every technological advance, including the internet, can be traced to a US government funded research project.


The government knows how to scale techonology, that's what they're good at, not great but good. If you don't think that NSA and the government are using bleeding edge technology then you obviously haven't spent much time in the environment. The government, and the DoD in partiucular are using technology today that you won't see commercially for at least 5-10 years. They also use some of the oldest technology, think 3270, since the apps were written for it.


Can you buy a system commercially that will perform IDS at the photon level? The feds are already doing it... and that's just the stuff that's public. Having grown up in DC I can assure you that the stuff they make public is probably years behind what they are currently doing. There's no way they're going to let anyone know what they're really doing and NSA has a blind budget. They don't have to tell anyone what the money is for, or what they're going to do with it, blank check... you can buy a whole lot of tech with a blank check, massive amounts.

stratboydave
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stratboydave,
User Rank: Light Beer
12/5/2012 | 5:11:34 PM
re: Huawei's Open Letter to the US


It's a communist country. Don't trust them. Don't buy Chinese made goods unless I absolutely have to. Definitely would not buy any network gear from them. If I was in the goverment, especaially DoD, I wouln't even talk to them. They are not our friend or "ally", they are our enemy. Keep your friends close, keep your enemies closer... but under intense scrutiny.

bollocks187
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bollocks187,
User Rank: Light Beer
12/5/2012 | 5:11:38 PM
re: Huawei's Open Letter to the US


Let get real this is simple a case of the US companies petitioning the govt for protection. Why its simple they make products as good as the West at half the price i.e. its ALL BS.


WHile it is acceptbale to manufactuer Everything in CHINA. The Chinese govt could  turn of the spigot and we would get no equipment in the West - nothing. 


So there is nothing to protect anymore the world has changed.


If Huawei is not allowed to compete in the USA, then one can argue that quid pro quo may occur and the Chinese govt can turn nasty and put force it telecom folks to complete elminate all western products and replace with chinese now matter how inferior. This would put a dent in Western companies bank balance. In addition a manufacturing tax increase of 5% would also add money to the coffers.


 


 

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