Huawei runs into regulatory static over technology deal

Huawei is facing renewed opposition within the U.S. government over a small technology deal it completed in May, according to multiple reports. The news highlights the difficulties the Chinese vendor continues to face in cracking the U.S. market.

Huawei spent $2 million in May to acquire some staff and intellectual property of the startup 3Leaf Systems, which provides server virtualization solutions. According to both the Wall Street Journal and the Financial Times, Huawei has decided to submit an application to buy the company to the Committee on Foreign Investment in the U.S., or CFIUS, which it did not feel it had to do earlier this year. The executive-branch agency reviews foreign acquisitions that might pose a threat to national security.

According to the Journal, the Pentagon took the unusual step of retroactively asking Huawei to submit an application to CFIUS for the deal. It is the first time Huawei has submitted such an application since CFIUS blocked Huawei and Bain Capital in 2008 from acquiring the technology firm 3Com.

The Chinese vendor insists it has nothing to hide. "From the outset, we've been very transparent," Bill Plummer, vice president of external affairs for Huawei USA, told the Journal. "At that time the perception was because of the unique nature of the activity and the acquisition of the patents that it simply wouldn't trigger a CFIUS review."

The tensions over a relatively small deal are notable because of Huawei's attempts to gain greater access to the U.S. mobile equipment market. The Journal reported earlier this month that Sprint Nextel (NYSE:S) decided to block both Huawei and ZTE from getting its multi-billion-dollar network modernization project because of mounting national security concerns about the vendors. Sprint has declined to comment on the topic, and Huawei and ZTE have said they have not been contacted by Sprint about the bidding process.

Nevertheless, Huawei has vowed to be patient as it tries to expand in the U.S. market. Charlie Chen, Huawei's senior vice president for U.S. marketing, recently told the FT that eventually Huawei will land a deal with a major U.S. carrier. "It may take a long time. It may take three or five or 10 years, it doesn't matter, we'll get there," he said.

For more:
- see this WSJ article (sub. req.)
- see this FT article

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