Huawei says NSA spying reports won't impact biz

Huawei said revelations that the U.S. National Security Agency had worked to crack into its servers and network gear and spy on the company will not have a negative impact on its business, according to acting CEO Eric Xu. However, the reports, which surfaced in March, have led Huawei executives and workers to engage in time-consuming damage control.

In March both the New York Times and Germany's Der Spiegel reported that the NSA has been spying on the company via so-called "back doors" into the company's servers in Shenzhen, China. Xu addressed those reports this week during a Huawei analyst conference.

"On the NSA ... it does not have a big impact on business growth," Xu said, according to Reuters. "But it has an impact on workloads, in communicating with and persuading current industry stakeholders (that products are secure), and that's more tiresome."

The surveillance activities were included in NSA documents provided by former agency contractor Edward Snowden. Via the operation called "Shotgiant," which began in 2007 and made major inroads into Huawei's servers during 2010, the NSA gleaned sensitive information about Huawei's technology and even monitored communications of the company's top executives, including its founder, Ren Zhengfei.

According to documents, the NSA also intended to use the information it gained about Huawei's technology, which included product source codes, to exploit Huawei equipment wherever it was deployed--whether in nations considered allies or others that avoided U.S. products--by conducting espionage and even offensive cyber-operations if ordered by the president. The irony, of course, is that U.S. officials have long suspected, but never offered definitive proof, that Huawei has ties to the Chinese government or military, and the company's products could be used as vehicle for espionage against the U.S. Huawei has denied those claims.

Since the Snowden revelations began last year, some U.S.-based multinational companies, including network gear makers, have seen their businesses suffer after the Chinese government pressured domestic firms to avoid purchasing U.S. products.

At Huawei's analyst conference, Xu also revealed that when Ren steps down as permanent CEO the company will be run by a team of executives, not a single person. "I can clearly tell everyone here that in the future the successor to Mr. Ren will not just be one person," Xu said, though he did not say when the new management structure would be put in place.

Since 2011 Xu, Guo Ping and Ken Hu have taken six-month turns as acting Huawei CEO, though Ren remains the company's permanent CEO. According to the Wall Street Journal, Huawei has said Ren has the right to veto decisions made by the company's board, but Huawei board member Chen Lifang told the Journal in an interview last year that Ren had never exercised the veto right.

Overall, privately held Huawei has said its financial performance was strong across all business areas in 2013, with revenue of $38 billion, up 8.5 percent year-over-year. Sales at Huawei's carrier network unit increased 4 percent to $26.7 billion last year, while its enterprise division increased revenue 32 percent to $2.4 billion. Huawei is targeting total 2018 revenue almost double the total revenue the company booked in 2013.

Huawei's consumer business is also growing, though not as fast it the company had expected. In 2013 Huawei's consumer business group, which includes smartphones, saw its sales jump 18 percent to $9.17 billion. In its annual report, Huawei said its smartphone shipments grew to 52 million in 2013, up more than 60 percent from the 32 million it had in 2012. However, that missed the company's goal of 60 million smartphone shipments for 2013. Huawei is targeting 80 million smartphone shipments in 2014.

The company aims to make itself more of a premier smartphone brand in 2014, and to that end it plans to spend $300 million on global marketing in 2014, Shao Yang, Huawei's vice president of marketing for its consumer business, told Reuters at the conference.

Huawei plans to use word-of-mouth campaigns to fight back against the huge marketing campaigns undertaken by rivals such as Samsung Electronics and Apple (NASDAQ: AAPL), Xu said, according to Mobile World Live. Huawei needs to be "really customer-centric" and to become a "lovable and trusted brand," Xu said.

"We don't think there are problems with our strategy for devices," Xu said. "Actually, our strategy for the terminal business has been set and determined in one of our executive meetings. I believe there will be no major changes to that strategy moving forwards."

For more:
- see this WSJ article (sub. req.)
- see this Reuters article
- see this separate Reuters article
- see this PCWorld article
- see this Mobile World Live article
- see this separate Mobile World Live article

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