What Does Huawei's Announcement of Exiting the U.S. Market Really Mean?

Last night, my Google Alert for Huawei captured an intriguing headline: "Huawei exiting US market: CEO". The article appeared in Global Times, a Chinese paper that's part of Peoples Daily. Here's the opening paragraph:

Chinese telecommunications equipment maker Huawei Technologies Co Ltd has exited the US market in order not to affect Sino-US relations, Ren Zhengfei, founder and CEO of Huawei, said in an interview in Paris, news portal 163.com reported Sunday.

Upon first reading, this raised a lot of questions in my mind regarding Huawei's current U.S. operations. It has offices in a number of U.S. cities and has already sold quite a bit of equipment to both U.S. corporations and the U.S. government. What would happen there, I wondered?

Fortunately, I was able to reach Bill Plummer, Huawei's VP of External Affairs by email and received the following clarification:

Huawei has prioritized markets that welcome competition and investment, such as Europe.  

That said, we remain committed to our customers, employees, investments and operations and more than $1 billion in sales in the U.S., and we stand ready to deliver additional competition and innovative solutions as desired by customers and allowed by authorities.

So basically what seemed like a radical change of strategy is actually something very practical. Huawei isn't pulling out of the U.S. physically nor is it abandoning its current U.S. customers. It is simply re-allocating its resources to increase sales in those parts of the world where it is welcome to compete.

Personally, as someone who has been a frequent critic of Huawei, I think it's a smart strategy. They're already the world's largest telecommunications hardware manufacturer. Why should they risk engendering more controversy by continuing to battle against U.S. government resistance when it will do nothing to improve their bottom line? In my opinion, Huawei's combination of low prices and quality manufacturing will eventually force adoption by U.S. corporations and government agencies. It might take years but I think that will be the inevitable outcome.

In the meantime, instead of hoping that the U.S. government will keep potential adversary states from selling them risky devices, U.S. companies should incentivize cyber security researchers to find ways to automatically test firmware updates for exploits. Currently, whether the hardware is made by Huawei, ZTE, or Dell, firmware updates are loaded automatically with no testing. If, down the road, a foreign intelligence agency (Chinese or otherwise) wants to compromise a strategically placed router made by a company that it has legal authorities over by adding a bit of malicious code, a firmware update is one of the easiest ways to do it.

As a side note I'm happy to say that both Bill Plummer and Andy Purdy (Huawei's CSO) will be at Suits and Spooks DC. Andy will be speaking on a panel that I'm moderating which will explore cyber security risks in the supply chain. We still have about 28 seats available if you'd like an opportunity to discuss Huawei and related cyber security issues with a couple of the company's executives face-to-face.

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Here are the Facts about Huawei and the Chinese Government

Yesterday Huawei was blocked by the U.S. Government from participating as an equipment supplier for the Public Safety 700-MHz Demonstration Network, which is a first responders communications network that's part of the Commerce Department. Huawei VP William Plummer wants to know why. According to Plummer:

“Huawei has repeatedly and factually demonstrated its corporate independence,” Plummer said. “No one has ever factually demonstrated otherwise and playing Huawei as a pawn in some geopolitical game of chess is doing nothing more than threatening U.S. jobs, investment, competition and innovation.”

Well, that's not really true. Here are the facts regarding Huawei's affiliation with the Chinese government and why the U.S. as well as other nation states should be cautious about acquiring Huawei equipment.

1. The company's founder Ren Zhengfei was an engineer in the PLA prior to forming his company.
2. The company's chairwoman Sun Yafang worked for the Ministry of State Security and while there helped arrange loans for Huawei before joining the company as an employee.
3. The government of China is Huawei's biggest customer; specifically the State-owned telecommunications services. 
4. Huawei equipment is used to intercept communications in China for state-mandated monitoring.

So to recap, Huawei is considered a national champion telecommunications firm in a nation that monitors all telecommunications networks and engages in cyber-espionage activities using, at least in part, Huawei equipment. The company's Chairwoman used to work for the MSS, China's foreign intelligence service and its founder started the company after serving in the PLA. Those are the facts, and they should be sufficient to justify denying Huawei access to the U.S. market as well as shame U.S. companies like Symantec who have partnered with them.

I'm happy to debate these facts with any representative from Huawei in any venue at any time. My contact information is at my company website.

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Huawei CEO's Nepotism Strategy May Prove Fatal

There's been some discussion by Huawei watchers that the patriarch / CEO of the company, Ren Zhengei, has been pressuring Chairwoman Sun Yafang (whom I wrote about last week) to resign (his latest offer is YUAN$1Billion) so that his son Meng Ping, also called "Ren" Ping (see photo) can replace Sun as Chairman of the board. Unfortunately for the company, Sun Yafang is highly regarded both inside Huawei and in the industry in general while Ren's son hasn't been able to gain the respect of the company's employees. In fact, according to my sources, some Huawei employees call him "A dou"; a historical reference to a king's son who's an idiot.

Currently, Huawei's board includes three family members – CEO Ren Zhengfei, CFO Meng Wanzhou (Ren Zhengfei's daughter), and Xu Wenwei (Ren Zhengfei's son-in-law and spouse of Meng Wanzhou).  Ren Shulu (Ren Zhengfei's younger brother) sits on the Board of Supervisors of Huawei. In addition to his brother and his children by Meng, Ren Zhengfei also has three sisters in Huawei.  His son-in-law Xu Wenwei divorced his wife to marry the CEO's daughter Meng Wanzhou. This was a strategic move by Xu to fortify his position in the company and enter Ren Zhengfei’s inner circle.  Xu is someone to watch because he's responsible for Huawei’s research and has a reputation for being quite competent.

Ren Zhengfei's preference for installing family members in high level company positions regardless of merit is understandable considering that he got his start by marrying Meng Jun, the daughter of the Deputy Governor of Sichuan Province Meng Dongbuo.  Besides being ambitious, he’s said to be a womanizer, especially favoring company secretaries.  His wife divorced him, and he married one of the secretaries, with whom he has a daughter.  Then he divorced again and married another company secretary.

Professor Chen Shengjun said, “If you put Mr. Ren Zhengfei and Mrs. Sun Yafang together, all Huawei employees think Mr. Ren Zhengfei is the Number one boss despite Mrs. Sun Yafang’s position as Chairman. Mr. Ren Zhengfei tried a lot to choose his successor from professional managers but failed. From Mr. Ren Zhengfei’s aspect, he probably has to leave Huawei to his children in consideration of the backwardness of China professional manager market especially lack of loyalty. Huawei probably has to become a family enterprise although this is a danger for Huawei.”

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