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The out-of-court settlement with Cisco forces the firm to focus on other markets

Huawei Technologies will quit the United States market by the end of the year as part of an out-of-court settlement with Cisco Systems, according to a well-placed source.

The source said China's largest telecommunications equipment maker would withdraw  its products and services from the US  and concentrate instead on other overseas markets such as Brazil, South America and Russia.

'They will do it by the end of this year,' the source said. 'They want everything - including the lawsuit and the intellectual property rights issue - settled by then.'

In January, Californian-based Cisco filed a lawsuit in a District Court alleging Huawei copied its intellectual property - including source codes - copied its documents and other copyrighted materials and infringed company patents.

In April, Cisco broadened its allegations against Huawei,  saying it had discovered new evidence showing Huawei routers identified themselves to a network as being Cisco products.

The Chinese giant initially halted selling some products in the US  and disabled some of the programs  on its controversial routers. But it claimed Cisco's action was anti-competitive and asked the court to deny Cisco's request for a preliminary injunction against it.

Cisco declined to comment, while a Huawei spokesman said he was not aware of the decision.

'Currently, we don't have much in the way of sales in the US as we have just started development of that market,' he said. 'But the US market has great potential, especially for our optical network and wireless CDMA (code division multiple access) products.'

In March, Huawei announced a joint venture with US-based 3Com to manufacture local area network (LAN) routers, switches and other products in Hangzhou.

However, it remains unclear if the joint venture, which would let Huawei sell its products under 3Com's name in the US, will be affected by the settlement.

International markets account for more than 20 per cent of Huawei's total revenue, and its overseas sales are growing rapidly.

Analysts said such an exit from the US was unlikely to deal a severe blow to Huawei but would help Cisco to 'save face'.

'Cisco must save face on the intellectual property side. That means that Huawei would have to make some kind of statement or promise never again to use Cisco's technology - which Huawei won't need with the 3Com deal anyway,'  International Data Corp (IDC) research manager Paul Strauss  said.

Gartner analyst Andrew Chetham  said: 'It won't be a big deal to [Huawei] in terms of revenue. However, it is still a significant market just because it is important to be seen in the US market as one of its overseas markets. If they are to exit from the [US] market, it could point the direction that it is preparing the ground for an out-of-court settlement.'

According to IDC, Cisco accounted for 62 per cent of the mainland's US$1.46 billion LAN market last year, followed by Huawei at 9 per cent and 3Com with 5 per cent.

'If the lawsuit really hurts Huawei's brand name and consumer confidence ... I guess most of the vendors or competitors will gain. Otherwise, I don't see there is strong impact on the China market,' IDC analyst Rachel Lo  said.

Experts expected Huawei and Cisco would reach a settlement before a court decision was made.

'It is far more likely that any commercial settlement would address agreed commercial concessions without any acknowledgment of IP infringement,' said Michael Reede,  a  partner at law firm Paul, Weiss, Rifkind, Wharton & Garrison.

A corporate lawyer said: 'Huawei cannot afford to lose the legal battle in court. If it loses, it will not only be subject to financial compensation, it might need to retreat from other overseas markets.''

End of the road

China's largest maker of telecommunications equipment will withdraw its products and services by the end of the year

Cisco accounted for 62 per cent of the mainland's US$1.46 billion LAN market last year



Huawei to withdraw from US