Backlash may put Chinese telecoms suppliers' US expansion in limbo

Huawei and ZTE expected to suffer backlash following release of American report on security

PUBLISHED : Tuesday, 09 October, 2012, 12:00am
UPDATED : Tuesday, 09 October, 2012, 3:01am

After making huge investments to grow their operations in the United States, leading Chinese telecommunications equipment makers Huawei Technologies and ZTE now find their expansion plans in limbo because of that market's security concerns.

The two Shenzhen-based companies are expected to suffer from a backlash in the US following the findings of a House of Representatives Intelligence Committee investigation and the public comments made by the panel's chairman.

"It will be more difficult for both companies to expand their US business in the enterprise and carrier network segments," said Bryan Wang, a vice-president at market analyst firm Forrester Research.

The committee's report, which was released yesterday, claimed that privately held Huawei and Hong Kong-listed ZTE had each failed to satisfactorily answer the panel's questions about their purported close ties with the China's government. It concluded that the firms posed a threat to US security and should be barred from the market.

Congressman Mike Rogers, the chairman of the committee, already gave a hint of what the report contained during an interview with US television show 60 Minutes the night before it was released. "If I were an American company today … 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," Rogers said in the broadcast, according to the Los Angeles Times.

Huawei, which reported total sales of 203.9 billion yuan (HK$251.43 billion) last year, has stepped up its investments in the US over the past 10 years. The world's second-biggest telecommunications equipment supplier employs about 1,800 staff and has 13 facilities across the country. It has partnered with large US distributor Synnex to broaden sales of its networking products.

While security concerns have prevented it from landing a major US network deal, Huawei has managed to supply key infrastructure to second-tier telecommunications service providers, including Clearwire, Leap Wireless and Cleartalk Wireless.

ZTE, the world's fifth-largest telecommunications equipment supplier, posted total revenue of 42.64 billion yuan in the first half. It has committed to grow 10 per cent annually its business in the US, where it has about 15 facilities and more than 400 employees. Spokesman David Dai Shu said ZTE would be less affected by network equipment security concerns in the US since 90 per cent of its business in the market was from mobile-phone sales.