How Huawei Became a Target for the U.S. Government: QuickTake

Jan 23 2019, 10:55 AMJan 23 2019, 11:55 AMJanuary 23 2019, 10:55 AMJanuary 23 2019, 11:55 AM

(Bloomberg) -- Huawei Technologies Co., one of China’s most-global companies, is increasingly in the cross-hairs of the U.S. government and its Western allies, just as it’s pushing for a leadership role in the new wireless standard known as 5G. After years of tension, the telecommunications giant is facing multiple battles, including the arrest in Canada of its chief financial officer, possible criminal charges in the U.S. and the prospect of being shut out of new infrastructure projects around the world. The wrangling also comes amid a growing U.S.-China trade war in which Chinese technology companies have been a particular bugbear for U.S. President Donald Trump.

1. Why does the U.S. have an issue with Huawei?

The company has enjoyed favorable treatment in China, and U.S. government officials and industry executives have long harbored suspicions that it works for Chinese government interests. A report released in 2012 by the U.S. Permanent Select Committee on Intelligence tagged Huawei and ZTE Corp. as potential security threats, saying neither had assuaged concerns that they are subject to pressure from Beijing. The report also said Huawei refused to describe the “full military background” of Ren Zhengfei, the former People’s Liberation Army engineer who founded Huawei in 1987. U.S. concerns about Huawei drove last year’s decision by the Trump administration to block Broadcom Ltd.’s hostile takeover bid for the U.S. company Qualcomm Inc. The transaction could have curtailed American investments in chip and wireless technologies and handed global leadership in those spheres to Huawei.

2. Why does the equipment matter?

The U.S. government — like the Chinese and others — is wary of employing foreign technology for vital communications for fear that the equipment manufacturers could leave a back door that allows their home-country intelligence agencies to access information, or that the companies themselves would hand over sensitive data.

3. What does Huawei say?

It has repeatedly denied that it helps Beijing spy on other governments or companies, and points out that no one has provided any proof to support such charges. The company, which says it’s owned by Ren and its employees, has in recent years begun releasing results, spent more on marketing and engaged foreign media in an effort to boost transparency. In January, Ren, who is famously reclusive, spoke to reporters about the challenges facing his company, including the arrest of CFO Meng Wanzhou, who’s also his daughter. While he said he was proud of his military career and Communist Party membership, he rejected suggestions he was doing Beijing’s bidding or that Huawei handed over customer information.

4. What’s happening with Meng?

She was detained in Vancouver on Dec. 1 at the behest of the U.S., which is seeking her extradition as part of a criminal case alleging that she conspired to defraud banks into unwittingly clearing transactions linked to Iran in violation of U.S. sanctions. Both Meng, who is also deputy chairwoman, and the company have denied wrongdoing. Meng, 46, was granted bail Dec. 11, allowing her to stay in one of her luxury homes in Vancouver while the courts decide her fate. She lives mainly in Shenzhen, Huawei’s hometown.

5. Are there other cases?

Civil ones go way back. In 2003 Cisco Systems Inc. sued Huawei for allegedly infringing on its patents and illegally copying source code used in routers and switches. Huawei removed the contested code, manuals and command-line interfaces and the case was dropped. Other accusations that Huawei stole intellectual property from U.S. companies surfaced. Motorola sued in 2010 for allegedly conspiring with former employees to steal trade secrets. That lawsuit was later settled. In 2017 a jury found Huawei liable for stealing robotic technology from T-Mobile US Inc., and in 2019 federal authorities were said to be investigating possible criminal charges tied to that case. Meanwhile, Poland, a staunch U.S. ally, arrested a Huawei employee on suspicion of spying for the Chinese government. Huawei fired the employee and denied any involvement in his alleged actions.

6. How big is Huawei?

In just over three decades it’s grown from an electronics re-seller into one of the world’s biggest private companies, with leading positions in telecommunications gear, smartphones, cloud computing and cybersecurity and operations in Asia, Europe and Africa. With a 2019 sales target of $125 billion, Huawei generates more revenue than Home Depot Inc. or Boeing Co. It’s plowed billions of dollars into 5G and is now among China’s top filers of patents both internationally and domestically. It has helped build 5G networks in more than 10 countries and expects to do the same in another 20 by 2020. In a direct threat to Qualcomm, Huawei is designing its own semiconductors. The Kirin series of mobile processors, made via subsidiary HiSilicon, compete with the Qualcomm Snapdragon chip employed extensively by Samsung Electronics Co. and other global smartphone brands. Huawei’s Kunpeng range is challenging Intel Corp.’s dominance in servers.

7. Are other Chinese companies feeling the heat?

Yes. ZTE almost collapsed after the U.S. Commerce Department banned it for three months in 2018 from buying American technology. The U.S. Justice Department has charged state-owned Fujian Jinhua Integrated Circuit Co., its Taiwanese partner and three individuals with conspiring to steal trade secrets from U.S. chipmaker Micron Technology Inc. The same day, then-Attorney General Jeff Sessions said the Trump administration would be focusing more resources to counter threats of “Chinese economic espionage.”