Huawei open to more US acquisitions

Rejection of its 3Leaf purchase led to ongoing dialog with the government

Huawei Technologies may seek more acquisitions in the U.S. after its ill-fated purchase of assets from 3Leaf Systems, and it thinks an ongoing dialog it has set up with the federal government could help to ease those deals through.

Earlier this year, the networking giant based in Shenzhen, China, agreed to divest the 3Leaf assets on the recommendation of the Committee on Foreign Investment in the United States (CFIUS). FutureWei, Huawei's subsidiary for U.S. research and development, had acquired the assets of the Silicon Valley virtualization vendor for about US$2 million. It submitted the deal to CFIUS, a government agency that reviews foreign companies' investments in the U.S., after it had been completed. After initially rejecting CFIUS's recommendation, Huawei came to an agreement with the agency.

Though CFIUS weighed in against that deal, Huawei won't shy away from future purchases, according to Bill Plummer, vice president of external affairs for Huawei Technologies USA, which runs the company's U.S. business.

"We anticipate that our growth will be largely organic," Plummer said in an interview this week. "However, if we come across a technology that we feel is promising and that we would like to further develop, then we will certainly consider acquisitions."

Huawei brings in about US$400 million annually from U.S. sales, but it has run into opposition over infrastructure deals with big customers, let alone acquisitions of U.S. companies. Political pressure scuttled a possible sale of network equipment to Sprint Nextel, according to some reports. Critics have accused the company of having ties to China's government and military, and raised the specter of "back doors" in Huawei networking products that make them vulnerable to Chinese intrusion. Huawei denies having those links.

The company would be better positioned to carry out future deals in the wake of the 3Leaf controversy, because negotiations with CFIUS on that deal led to an ongoing relationship with the agency, Plummer said. That relationship is specifically focused on dissolving the 3Leaf deal, Plummer said, clarifying comments made earlier this month by Huawei Group CTO Matt Bross, who said it involved oversight of all of Huawei's U.S. operations. But Plummer believes the ongoing process of divesting the 3Leaf assets will have broader benefits.

"The nature of the agreement is that it is, for the first time, a vehicle that allows for building a relationship of mutual trust between Huawei and the U.S. government," Plummer said. "The more that we interact, the more that we can drive trust."

Since agreeing to drop the 3Leaf purchase in February, Huawei has taken several steps toward greater openness, which it believes will help to clear up what Plummer called "misconceptions." Earlier this week it publicly named the members of its board of directors for the first time. Earlier this month, Huawei Technologies USA held an open house at the company's Silicon Valley research center. Though the lab has been open for nearly two years, the occasion marked Huawei's 10th anniversary in the U.S.

[Watch a video of the lab opening here.]

Immediately after dropping the 3Leaf purchase, Huawei laid out details of its relationship to the Chinese government and of steps the company takes to make sure its products can't be compromised. In an open letter, Huawei USA Chairman Ken Hu called on the U.S. government to formally investigate the company.

No agency has taken Huawei up on that offer, though the lines of communication are open, Plummer said. "We're certainly open to and have had dialog with the government on many fronts in the wake of the open letter."

CFIUS could carry out such a probe if Huawei were to embark on another U.S. acquisition, he said.

"Having laid out the facts, to the extent that anyone has a lingering misperception -- call it an investigation, a review, an audit, a site visit, whatever you want -- we're open," Plummer said.

Stephen Lawson covers mobile, storage and networking technologies for The IDG News Service. Follow Stephen on Twitter at @sdlawsonmedia. Stephen's e-mail address is stephen_lawson@idg.com

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