Wolf Richter www.testosteronepit.com
Huawei is a prime example of Chinese companies scaling the value chain through innovation and technology transfer—top priorities in China's five-year plan. But its efforts to become a major player in the US give the US government, and anyone concerned about national security, the willies. And now, these concerns dissolved another deal, yet the root problem remains.
Huawei, already one of the world's top suppliers of telecom and networking equipment, has branched out into servers, data management centers, cloud-based software services, smartphones. You name it. It even sports a tablet. It has all the marks of success, from scrappy startup to multinational. In 2011, sales increased by 14% to $32 billion. It is active in 140 countries, operates 23 R&D centers worldwide, and has a global workforce of 140,000. Since 2001, it has made significant inroads into the US, where it employs 1,700 people. Last year, according to SFGate, it spent $230 million on R&D in the US. Its center in Santa Clara, CA, for example, focuses on photonics, optics, and LTE devices (wireless communication of high-speed data).
It is also a huge customer: since 2001, procurement agreements with US businesses exceeded $30 billion. This included $6 billion in contracts, announced in February, with Qualcomm, Broadcom, and Avago, all California companies—supposedly creating tens of thousands of jobs in the state. "A demonstration of confidence in the long-term relationships we have cultivated with our local high-tech partners," said Chen Lifang, Senior Corporate Vice President of Huawei.
But the US government is worried. It relies on US supplied technologies for its secure data centers, networks, and communication channels worldwide. Breaching them by introducing equipment or software would be the absolute homerun for a foreign intelligence service. With potentially catastrophic consequences for national security—though they may not always be obvious to the media: “It's not clear what the U.S. government's problem with Huawei is, apart, perhaps, from generalized concerns about China's coveting of other countries' advanced technology,” SFGate stated naively.
Run of the mill breaches happen all the time. We already know from NASA Inspector General Paul Martin’s testimony before Congress that his agency experienced 13 security breaches last year, some of which could compromise US national security. For more on this and some spooky privacy issues, read.... Can't Even Urinate in his own Yard Anymore.
Huawei, whose largest customer is the Chinese government with its state-owned enterprises, consistently denies having links to security services—but even if that were true, it wouldn't change much. So the US government has confronted Huawei in numerous ways, most visibly when it blocked it from acquiring US companies. In 2008, the Committee on Foreign Investment in the United States (CFIUS) torpedoed the acquisition of 3Com. In 2010, Republicans in Congress raised a ruckus about Sprint Nextel’s efforts to buy telecom equipment from Huawei. In 2011, Huawei had to unscramble the acquisition of 3Leaf's assets. But Huawei became a bit savvier in the American way: it has hired a Washington a law firm headed by former Secretary of Defense William Cohen.
Now it emerged that Symantec, the largest maker of computer security software, is dissolving its joint venture with Huawei, according to anonymous sources cited by the New York Times. This is a step further than the announcement last November that Symantec would sell its 49% share to Huawei. Apparently, Huawei already dismissed some of its employees in the joint venture's office in Silicon Valley and would transfer all activities to locations overseas. “Increased American government oversight" was the reason, according to the Times.
Protecting the US from all cyber threats may be impossible, but the government is trying to come up with new ways. According to the Times:
In January, the Pentagon transferred an information-sharing pilot program, called the Joint Cybersecurity Services Pilot, to the Department of Homeland Security. The program was originally intended to share classified National Security Agency intelligence with military contractors. Homeland Security is expected to extend the program beyond those companies to antivirus companies, like Symantec, and network providers.
Clearly, Symantec wanted to feed at the big trough. And Huawei needed to be kept away from classified-cyber threat information—a separation that may become theoretical as tech companies are increasingly interwoven through their complex international supply chains and partnerships.
Chinese expansion overseas—and the technology transfers associated with it—is a national priority. And Chinese companies, many of them government owned, have gone on veritable shopping sprees. For how this dynamic is impacting export powerhouse Germany, and for the fretting it produces, read.... China, the Number One Foreign Investor in Germany.