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Huawei enterprise aspirations dashed by U.S.-China trade tensions

Huawei enterprise aspirations for North America were crushed this week when Congress warned U.S. businesses of Huawei security concerns.

The effort to build a Huawei enterprise business in North America is on life support. Should we pull the plug?

This weekend the company suffered two massive blows against its designs on expanding here. First, CBS's 60 Minutes broadcast a report about potential Huawei security concerns that explored Huawei Technologies Co.'s connections to the Chinese government and military. Just hours after it aired, the U.S. House of Representatives' Permanent Select Committee on Intelligence, which has been investigating both ZTE Corp. and Huawei security concerns since late last year, published a report urging U.S. companies and the government not to do business with either company due to suspicions over whether Chinese-made network equipment threatened cybersecurity and enabled economic espionage.

The committee found no evidence of wrongdoing by either company, but it accused Huawei in particular of failing to cooperate with its investigation. "Neither company provided specific details about the precise role of each company's Chinese Communist Party Committee," the report stated. "Furthermore, neither company provided detailed information about its operations in the United States. Huawei, in particular, failed to provide thorough information about its corporate structure, history, ownership, operations, financial arrangements or management. Most importantly, neither company provided sufficient internal documentation or other evidence to support the limited answers they did provide to committee investigators."

In a lengthy statement, Huawei defended itself against the committee's report: "Unfortunately, the committee's report not only ignored our proven track record of network security in the United States and globally, but also paid no attention to the large amount of facts that we have provided … The report released by the committee today employs many rumors and speculations to prove nonexistent accusations. This report does not address the challenges faced by the ICT [information communications and technology] industry. Almost every ICT firm is conducting [research and development], software coding and production activities globally; they share the same supply chain, and the challenges on network security is beyond a company or a country. The committee's report completely ignored this fact. We have to suspect that the only purpose of such a report is to impede competition and obstruct Chinese ICT companies from entering the U.S. market."

Congress's strike against Huawei could be tied to rising trade tensions between China and the U.S., which have ratcheted up in recent months, especially with the major political transitions happening in both countries. In the U.S., we have a hotly contested presidential election. China is weeks away from its once-in-a-decade leadership transition, when the 18th congress of the Chinese Communist Party will name replacements for China's premier, president and most of its Soviet-style Politburo.

Regardless of those tensions, unless Huawei can find a way to ameliorate the U.S. federal government's suspicions, its chances of building a successful enterprise networking business in North America appear to be dead.

Was there Huawei enterprise momentum in the U.S.?

The Huawei enterprise business was shaky even before the twin blows from Congress and CBS. Last week John Roese, Huawei's chief technology officer for North American research and development, left the company to join EMC Corp. as CTO. Roese, a former Nortel CTO, had been serving as the face of Huawei before his departure, and he was the head of Huawei's Enterprise Global Competency Center in Santa Clara, Calif., which specializes in teaching channel partners how to work with and sell Huawei products. His departure had to be a blow to Huawei's channel-building efforts. Huawei still has about 1,700 employees in North America, and about half of them are in research and development (R&D), according to Bill Plummer, Huawei USA's vice president of external affairs. They are distributed over seven R&D centers in the U.S.

There were also very few signs of Huawei enterprise momentum in North America. Huawei touted some momentum in building out a sales channel at Interop in New York City last week, boasting of a customer assurance agreement with Essintial Enterprise Solutions that gave Huawei customers access to 1,000 field engineers in North America, four-hour parts-replacement service and on-site field engineering support. Huawei also announced distribution agreements with Communications Test Design Inc. and Condre Storage Inc.

However, Huawei is extremely vague when speaking about its progress with actual enterprise customers. Huawei's Plummer offered few details when I asked him to describe enterprise customer momentum. "We're taking a step-by-step approach to this marketplace," he answered. "When we fired up this business a year ago, everything was upside, and that continues to be the case."

When I asked Plummer whether Huawei had scored any major enterprise customer wins in recent months, I received another vague answer: "Given that the approach to this market is channel-oriented, a lot of what's taking place is going through our channel partners… [There's] not a lot of direct B2B."

Most technology firms know whether their channel is selling into any major accounts. If its channel was making progress, Huawei would hear about it.

More fallout for ZTE

Meanwhile, the hits kept coming for China's ZTE. News broke Monday that Cisco was severing its seven-year sales partnership with the company following an internal investigation into allegations that ZTE had resold Cisco products to the Iranian government in violation of international trade embargoes.

Let us know what you think about the story; email: Shamus McGillicuddy, News Director.

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