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Entries in Huawei (38)


EU, China ready to settle on vendor dispute

The EU and China appear to be close to a deal to settle their dispute over state support for Huawei and ZTE.

Click to read more ...


Ren Zhengfei on finding a successor, going public and US vs China

Huawei’s reclusive boss Ren Zhengfei has opened up on his succession, his reluctance to take the company public, difficulties in retaining staff, and why the Chinese firm is in the US sights.

Yet probably the biggest surprise in his recent interview with Chinese journalists is the revelation that rival John Chambers had consulted him about Cisco’s succession.

The two companies are fierce competitors, and Chambers has reportedly described Huawei as Cisco’s biggest threat.

Asked about retirement and his CEO succession plans, Ren said Chambers, who turns 65 in August, “personally sought my opinion” about his own replacement.  “Although we are competitors, we still have useful exchanges,” Ren said, adding that “of course, I didn’t know who would be the best for their succession.”

He did not say when or where the discussion took place.

Ren, who turns 70 later this year, said he had no plans for retirement, citing his “friends” Maurice Greenberg, the 88-year-old ex-AIG chief, and Simon Murray, 74, the storied former head of the Hong Kong Hutchison Whampoa group, who are both still active in business.

He said Huawei’s succession problem was that “we have too many potential successors, not too few.”

Ren, who owns 1.4% of Huawei stock, says he would not allow any family member to take his place as CEO, although he was not asked about the role of his daughter, Cathy Meng, who is CFO and a board member.

The Huawei founder also gave a curious explanation as to why he won’t take the company public.

Huawei executives have said that the privately-held firm can raise all the funds it needs from cashflow and by issuing shares to employees. But Ren said that if it went public Huawei would inevitably “diversify,” and that would “destroy 20-plus years” of growth.

“If we don’t diversify, we will have no cash difficulties,” he said, forecasting that Huawei will spend up to $10 billion on R&D in the near-term to keep pace with technology change.  “[W]e are determined to not enter the capital markets and not to diversify. If our development doesn’t need too great a scale, how could cash problems emerge?”

Talent outflow

Ren didn’t explain what he meant by diversification, but by the standards of western business, Huawei is already an extremely diverse business. Unlike its western rivals it is in every part of the fixed and mobile telecom equipment business, not to mention its flourishing enterprise and device units.

Ren acknowledged Huawei suffered from “an outflow of talent,” especially when one of China’s internet companies is prepping for an IPO. Unlike those internet firms, the size of the company meant “we can’t just incentivise a few people - we need to attract 15,000.”

He said he was “hurt” by the recent resignation of senior handset executive Colin Giles after less than a year in the post but could not hold him back (see Huawei Handset Man Jumps to Lenovo).

“We want to gradually change, but if the world’s best talent won’t enter, how to make [Huawei] the world’s best company?”

Ren said he regarded the US prohibition on Huawei equipment as aimed at China, not the firm.

“The stronger China becomes the more the US will attack it.  “In fact, the US is not attacking Huawei, it’s attacking China, because the US does not want China to become strong, and its always looking for a new point to aim at.”

He also demonstrated himself a proud patriot, expressing himself in just the kind of language an ex-PLA officer might use. Asked if he had a faith, Ren said:

I have a faith, that is I have faith in our country today. We previously thought capitalist society can massively liberate productive forces, but we have discovered that as social inequalities have expanded, problems have emerged, bogging down our development.

The [Communist Party] Third Plenum is on the correct path. Previously we weren’t clear which of the big three continents - the US, EU and China – would rise first. Now we are clear - China will certainly rise first. China has recently encountered some short-term transformation problems, but over the long-term these will certainly be solved, and following that our development will be increasingly strong.

UPDATE: The word translated above as 'diversify' (duoyuanhua) can also mean 'pluralise', which at least one other blogger has used. Under that translation, Ren is saying that going public would mean dilution ('pluralisation') of control of the company - which makes sense - but he is also suggesting that by going public the company would face shareholder demands on earnings which would diminish its R&D effort; a number of untested assumptions. So while it is probably a better translation, the thinking is equally disingenuous.


Huawei ban is beating a path to protectionism

By the lofty standards of the NSA scandal, the revelation that it hacked not just Huawei’s servers but also its products may rank as a mere footnote.

But it sends a few more awkward questions to the agency’s inbox. Such as over the legality of planting backdoors in Huawei’s equipment. Does that enhance national security or is it unlawful over-reach?

There’s also the obvious point, made by Huawei executive William Plummer and many commentators:

“The irony is that exactly what they are doing to us is what they have always charged that the Chinese are doing through us.”

It reinforces the view of this blog that US suspicion of Huawei is a massive case of projection; the Pentagon, the CIA and the NSA fear that Huawei will do to the US what they are doing to everybody else.

In fairness, probing communications vendors, and especially those from China, the world’s most shameless cyber attacker, is a reasonable part of the NSA mission. Building backdoors is probably not.

But the NSA occupation of Huawei’s networks failed to yield any sign of an intelligence relationship with Beijing – something else this blog has previously inferred. In which case the US should allow the company to go about its business in the United States and elsewhere. 

The logic of the security state lays down a path to protectionism. This harassment of Huawei gives China the excuse to do the same to foreign companies in China. In a state-driven economy in a country held together by nationalist ideology, it doesn’t take much encouragement.

MIT’s Technology Review makes exactly that point:

But the bigger fallout may be a rise in protectionism. “It’s been mostly open competition since the beginning of the Internet, and the companies that did well are the ones that won the competitions,” says [analysts James] Lewis. Now, with escalating security worries, countries may take the chance to stack the deck against foreign competitors or build up their own industries.


4G contracts: China Mobile throws EU firms a bigger bone 

Huawei and ZTE have once again won the biggest share of a major Chinese telecom tender, despite being undercut by Nokia Siemens.

In what is certain to be the largest telecom tender this year, China Mobile handed out 20 billion yuan ($3.27b) in contracts to build its TD-LTE network in 100 cities.

Nokia Siemens surprised the industry when it was revealed during the tender that it had bid the lowest price - the first time a foreign vendor had done so. Despite that, it won no more business than other foreign players, and much less than the two large local firms.

With what appears to be immaculate stage management, Huawei and ZTE emerged with 26% each of the total tender, while the three foreign vendors, Ericsson, Nokia Siemens and Alcatel Shanghai Bell, were allocated 11% apiece. Small Chinese players Datang, Potevio, New Postcom and Fiberhome picked up the remainder.

Chinese telecom news site C114 noted that the 67% share won by local firms was down slightly from their 70% share of China Mobile's trial network last year.

The market share number is more than academic. EU Trade Commissioner Karel De Gucht has warned he would push ahead with his subsidies case against Huawei and ZTE if European firms did not win a fair share of Chinese domestic contracts.

Chinese firms have a 25% share of the EU market, according to CICC telecom analyst Chen Haofei. The 33% of these contracts that have gone to European firms are probably enough to stave off De Gucht's attentions.

As well as the size - 207,000 base stations - this contract is strategically important as the first large-scale tender for the China Mobile's 4G network. The major winners are best-placed to pick up follow-up contracts as the network expands over the next decade or so.


Spooks, spies and backup tape  

Gen. Michael Hayden’s lengthy encounter with the Australian Financial Review last week was unusual in itself.

Despite the appetite for spook-related stories these days, the most widely-reported part of the interview is the claim by the ex-CIA and NSA chief about Huawei's role in Chinese espionage.

What's telling is not the assertion, or the inevitable lack of accompanying hard fact; it's that the assertion itself is adequate.

Hayden tells the interviewer that Huawei “would have” shared its knowledge of foreign telecom systems with Chinese authorities.  Asked if evidence exists that Huawei has engaged in espionage on behalf of China, he replies (emphasis added):

Yes, I have no reason to question the belief that’s the case. That’s my professional judgement. But as the former director of the NSA, I cannot comment on specific instances of espionage or any operational matters.

Thus Huawei’s role as a security threat is reduced to a mere “belief”. Even within 'operational' constraints, if you have a case against someone, you will find a way to express it. And you would certainly put it with more conviction than the phrase above.

But Hayden does us an unintentional favour here by making it clear that Huawei is proscribed not because of what it's done but what it has the potential to do.

Hayden reveals that after retiring from the CIA he even received a pitch from Huawei in its search for Beltway advocates. According to Hayden, Huawei said all the right things: 

But God did not make enough briefing slides on Huawei to convince me that having them involved in our critical communications infrastructure was going to be okay. This is not blind prejudice on my part. This was my considered view based on a four-decade career as an intelligence officer.

He adds:

But frankly, given the overarching national security risks a foreign company helping build your national telecommunications networks creates, the burden of proof is not on us. It is on Huawei.

Leaving aside the ontological challenge of demonstrating that one is not a spy, this is the logic of the national security mindset. It takes a brave politician to challenge it and through the Cold War, the 'war on terror' and now the contest with China, it’s been the prevalent one in Washington.

The rest of world, including the telecom industry, has to live with it.  Telstra and PCCW are surely not the only operators to have signed pledges allowing the FBI access to their cables or to store data for its convenience.

But as this blog has suggested before, this logic makes suspects of all vendors.

In this part of the world, that puts the spotlight on Cisco. According to Ni Guangnan, a professor at the Chinese Academy of Engineers, Cisco provides 70%-80% of the backbone routers, international gateway nodes and super-nodes in the two biggest backbone networks, China Telecom and China Unicom.

In a widely-reported incident last October, Unicom swapped out Cisco routers for Huawei kit in what is said to be the world’s largest cluster node. Because of Cisco’s large installed base and the thousands of Cisco-qualified engineers, we won't see a rush to dump Cisco gear.

The Snowden saga has given China the ability to laugh off US complaints about its online data theft. Now the US national security case, as put by Hayden, is a script that China will faithfully adapt for its own purposes.

So stand by for the continued blocking of foreign telcos, more technology protectionism and the dextrous application of 'national security' to ensure China's networks are increasingly the preserve of the home team.