U.S. Resellers Wary of Huawei’s Risk

Huawei Technologies Co.’s ambitions in the America channel now face a substantially steeper hill following last night’s report on CBS’s 60 Minutes, in which the stalwart television news magazine detailed suspicions of the China-based telecommunications company’s alleged theft of intellectual property and potential threat to U.S. national security.

A spot survey by Channelnomics reveals such assessments by U.S. government officials will sway solution providers from engaging with vendors and distributors that have been labeled as potential thieves of intellectual property who undermine U.S. economic interests and pose a threat to national security.

In the 60 Minutes report, U.S. Rep. Mike Rogers (R-Mich.) offered a damning assessment of Huawei, deeming them bad partners for American businesses and calling out U.S. companies that work with the IT equipment manufacturer.

>> UPDATE: Full House intelligence committee report available here (pdf) <<

“If I were an American company today, and I’ll tell you this as the chairman of the House Permanent Select Committee on Intelligence, and you are looking at Huawei, I would find another vendor if you care about your intellectual property, if you care about your consumers’ privacy, and you care about the national security of the United States of America,” said Rogers, who is chairman of the Permanent Select Committee on Intelligence.

Worse for Huawei, more than two-thirds of solution providers polled by Channelnomics say that their customers will be less likely to buy hardware or software from vendors suspected of compromising U.S. national security or economic interest. And, nearly eight out of 10 solution providers say they would not work with such vendors.

>> Check out 15 foreign companies the U.S. isn’t afraid to do business with <<

The news isn’t much better for Huawei’s primary distribution partner, Synnex Corp., which has been helping the company identify solution providers for recruitment and sales. The Channelnomics poll found nearly 80 percent of solution providers wouldn’t buy from or work with a vendor labeled a national security or economic threat. Only 8 percent of solution providers said the threat didn’t matter.

Synnex did not respond to requests for comment. A spokesperson told Channelnomics Saturday night its executives were still engaged at the distributor’s annual National Conference in Greenville, S.C. A second request for comment Sunday was not answered.

Huawei last week signed two new distributors, Communications Test Design Inc. of West Chester, Pa., a specialist in communications equipment sales; and Condre Storage Inc. of Eden Prairie, Minn., a niche distributor or storage equipment and services.

The accusations against Huawei are not new. The company has been the subject of numerous allegations of intellectual property theft and suspicions of having hidden ties to the Chinese communist government that could compromise its operational integrity. 60 Minutes correspondent Steve Kroft even noted that Communist Party officials have offices inside Huawei’s global headquarters in Shenzhen, China just outside Beijing.

The specter of Huawei’s  threat to U.S. national and economic security involves an ongoing tale of corporate espionage and the potential for spying. Huawei has been accused of stealing trade secrets from Canada-based Nortel Networks Corp., which went out of business because it could no longer compete. Cisco Systems Inc. sued Huawei in 2004 for copying its switches down to typos in the manuals. And Motorola Solutions Inc. made allegations that Huawei recruited employees to steal technical information.

As recently as last week, Cisco waived confidentiality agreements between the two companies and called upon Huawei to release the full report on its intellectual property theft.

As Cisco general counsel Mark Chandler wrote, “To facilitate the understanding about what actually happened in the litigation and allow Huawei to itself clear up any confusion, we waive any confidentiality requirement for the report and suggest that Huawei itself have the expert’s complete final report put into the public domain.   Fair competition, indeed, requires transparency of business practices and a respect for intellectual property rights.”

Cisco is a staunch Huawei critic. CEO John Chambers has repeatedly called Huawei the greatest threat to Cisco’s market dominance, and with good reason. Huawei is branching out from its telecommunication switches and enterprise data routers to video conferencing and telepresence, two segments in which Cisco is a market leader.

Today, the House Permanent Select Committee on Intelligence will release a report that is expected to lay into Huawei for its business practices and potential to compromise U.S. security. The fear is Huawei’s ties to China’s government and military could give them access to U.S. networks, disrupt communications and the ability to wage cyberwar.

These reports come at a critical time for Huawei, as it continues to push its channel development in the United States. Globally, Huawei has ambitions to grow from the $32 billion company it is today into $100 billion by the end of the decade. Huawei America vice president Bill Plummer tells Channelnomics that the U.S. market is integral to that growth strategy and the U.S. channel is a catalyst for increasing sales.

In the 60 Minutes broadcast, Huawei’s Plummer reiterated the company’s commitment to U.S. partners and suppliers, saying the hardware company buys more than $6 billion in components from U.S. suppliers and indirectly supports more than 35,000 American jobs.

In a statement to Channelnomics issued Sunday night, a Huawei spokesperson said, “Huawei is a globally trusted and respected company doing business in almost 150 markets with over 500 operator customers, including nationwide carriers across every continent save Antarctica.  The security and integrity of our products are world proven. Those are the facts today. Those will still be the facts next week, political agendas aside.”

While the allegations against Huawei are damning, so too are the underreported and unexplained causes for Huawei’s assent in the U.S. market. In short, the company has no rival for its 4G telecommunications switches, and that’s giving it a beachhead for selling other products such as storage, enterprise data networking and security equipment. 60 Minutes said the closest competitor is Cisco, but the U.S. market leader cannot supply complete telecommunications systems as can Huawei.

60 Minutes did note that the U.S. invented the telecommunications market that Huawei is plying, but no longer has a substantial presence. The only other major suppliers are Sweden-based LM Erricson AB and France’s Alcatel-Lucent SA. While 60 Minutes repeatedly highlighted concerns about China’s government compromising Huawei’s operations, it hardly played lip service to the U.S. government pressuring American companies from buying from Huawei.

Not mentioned in the 60 Minutes report was the dissolving of the Huawei relationship with American security vendor Symantec Corp. In 2007, Symantec founded a joint-venture with Huawei called Huawei Symantec. The goal of this partnership was to develop new storage and security products, and help both companies enter their respective home markets. In January, Symantec sold its majority share in the venture to Huawei for nearly $500 million. Unconfirmed reports say Symantec sold to satisfy U.S. regulators or to maintain access to U.S. government intelligence reports.

Solution providers tell Channelnomics that none of the reports address a larger issue of outsourced manufacturing in China. Most of the enterprise and consumer electronic goods sold and operated in the U.S. are made entirely or in part in Chinese factories. The opportunity to introduce backdoors and sniffers to U.S.-bound equipment goes far beyond Huawei, they say.

Additionally, there was no explanation on how Huawei could facilitate a digital blackout of the U.S. telecommunications network or steal the digital treasures of U.S. corporations. The 60 Minutes report impliedHuawei could simply flick a switch and start siphoning off business plans, blueprints and research at will. Huawei is still a minor player in the U.S. market, and the Chinese are already accused of massive industrial espionage that isn’t facilitated by Huawei equipment.

Huawei’s standard defense is that it’s a business, and compromising the operations of its host markets and their companies (and their customers) is not in their long-term interest. Perhaps that’s true, but it’s also true that the U.S. has allowed itself to fall behind in what appears a lucrative and growing technology segment. The question why American companies aren’t racing to capture this apparently burgeoning telecom switch market was not asked.

If there’s good news for Huawei this morning, the Channelnomics spot survey found that most solution providers believe foreign competition is ultimately good for the market and their businesses, and that increasing foreign competition is fanning much of these suspicious about security risks and economic threats.

“Huawei is patient company and a world leader. We introduce innovation and products at an attractive price. And we introduce competition to markets that are dominated by incumbents. And we’ve been successful,” Plummer told Channelnomics last week.

>> Check out 15 foreign companies the U.S. isn’t afraid to do business with <<

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