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Huawei Founder Fails to Put Minds at Rest

Iain Morris

A rare appearance by Huawei Founder Ren Zhengfei before reporters from some of the world's biggest media outlets was clearly designed to allay mounting concern about the world's biggest networks vendor, its possible ties to the Chinese state and its alleged dealings in Iran. It looks to have been a largely fruitless exercise, judging by a transcript of the discussion. (See Huawei's CEO Denies Back Door Theory – Reports.)

Huawei Technologies Co. Ltd. does not seem to have understood that any denials it is an instrument of the state, and acting at the government's behest, are beside the point. If the Chinese military is using Huawei equipment to spy on the West (a big if), it is probably doing it without Huawei's knowledge. Turn the situation around: No denial by US technology firms of government links would end suspicion the US National Security Agency is trying to infiltrate US technology to spy on other countries.

Huawei founder Ren Zhengfei insists his firm would resist requests by the Chinese government to spy on customers.
Huawei founder Ren Zhengfei insists his firm would resist requests by the Chinese government to spy on customers.

While Ren was quizzed at Huawei's Shenzhen headquarters about "requests" by the Chinese government, he was not explicitly asked if he could guarantee that government authorities have never infiltrated Huawei's products. And such an assurance is one that perhaps no executive at a high-profile technology company would be able to provide. The best any could do is probably a "not to my knowledge," which does not answer the question.

At other times, Ren was evasive. He declined, for instance, to comment on Huawei's decision to sack an employee charged with spying in Poland but stand by Meng Wanzhou, its chief financial officer and Ren's daughter, who is currently on trial in Canada for alleged fraud. Reporters failed to ask Ren about Huawei's ties to a networks company called Skycom, which did business in Iran and was, according to North American prosecutors (but not Huawei), a front for the Chinese vendor. In all likelihood, he would have furnished his interviewers with the same response he gave to questions about his daughter: "I'm not in a position to make further comments other than the information available from our official statements." (See Eurobites: Huawei Washes Its Hands of Arrested Exec in Poland and Huawei CFO Posts Bail in Canada.)

But a report by Reuters on the Skycom connection is fairly damning. Among other things, the US newswire claims to have unearthed documents showing that a high-ranking Huawei executive managed Skycom's business in Iran. He is said to have hung up the phone when Reuters called him for comment. In 2010, a Skycom proposal offering to sell Hewlett-Packard computers to Iran's biggest mobile operator featured Huawei's logo on numerous pages, Reuters reports. (See Huawei Controlled Firm That Sold to Iran – Reuters .)

When ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), Huawei's smaller Chinese rival, was similarly charged with dealings in Iran that breached US sanctions, it acknowledged wrongdoing and agreed to pay a hefty fine. But Huawei has apparently continued to insist it did nothing wrong. Skycom was only a business partner, it is reported to have said, and not under the control of Huawei. The case Huawei is fighting against Meng alleges that she lied to US financiers about Huawei's relationship with Skycom. US banks may then have unwittingly breached US sanctions by clearing Huawei transactions worth hundreds of millions of dollars. (See Amid the Rubble of L'Aquila, ZTE Tries to Rebuild.)

The revelations by Reuters could make it hard for most third parties outside China to believe that Huawei is entirely innocent. And if a company's chief financial officer lied about doing business in Iran, how could anyone trust what it said on the nebulous issue of security?

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Despite the current backlash, with several countries and operators ruling Huawei out of 5G business, Ren is not anticipating much of a slowdown in growth. This year, he said, revenues are expected to rise about 20%, to roughly $125 million, after increasing 21% in 2018, to $108.5 billion. "We will not take advantage of the difficulties that our peers like Ericsson and Nokia are facing, in order to seize their market shares," Ren told reporters. "I also think that the macro environment is in their favor, because there are restrictions on Huawei in some countries." Just what would Huawei have forecast in 2019 revenues without those restrictions? (See Huawei Expects 2018 Revenues of $108.5B.)

The worst-case scenario is some form of retrenchment driven by US penalties and exclusion from network deals in additional countries. "If we are not allowed to sell our products in certain markets, we would rather scale down a bit," said Ren. "As long as we can feed our employees, I believe there will always be a future for Huawei." (See Where Huawei Fears to Tread.)

A ban on the sale of US components to Huawei could provoke a Chinese response, and it might drive China to become more technologically self-reliant, damaging US interests. Nor would it hurt Huawei as much as it did ZTE. The smaller company remains heavily dependent on US suppliers, whereas Huawei makes a bigger proportion of its own components. (See How the West Can Hurt Huawei.)

But if there is another reason to feel some optimism about Huawei's prospects, it is that many operators value the company's technology more than they worry about Chinese spying and Iranian affairs. Amid all the recent sound and fury, Huawei has signed another eight 5G contracts since late November, giving it 30 overall, and shipped as many as 25,000 5G base stations, according to Ren. Ericsson and Nokia may still have their work cut out. (See BT's McRae: Huawei Is 'the Only True 5G Supplier Right Now'.)

— Iain Morris, International Editor, Light Reading

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