Huawei raises the stakes in US

Huawei has upped the stakes in Washington with its decision to ignore a request from a key security body to divest itself of Silicon Valley startup 3Leaf Systems.

Huawei bought the firm, which offers virtualisation and other server technology, for $2m last May, but did not declare it at the time, claiming it not believe it was necessary.

The Committee on Foreign Investment in the United States (Cfius) has told Huawei that it must sell 3Leaf or it will recommend to the White House that the deal be unwound.

In a move clearly intended to throw the spotlight on what it perceives as unfair treatment in the US, Huawei will bypass that and take the issue straight to Obama, the FT reports.

“This is brinkmanship,” said one veteran attorney who asked not to be named. “To say ‘We are going to appeal to the president over the recommendation of his national security advisers’, which is what Cfius is, is stunning.”

Huawei, the world’s third-largest vendor, has jumped through every hoop in its effort to crack the US market but has been stymied because of its alleged links with the PLA.

CEO Ren Zhengfei co-founded the company in Shenzhen in 1987 with fellow ex-PLA officers. The privately-held firm has never fully disclosed its shareholders, but it has denied it has any military connections.

Huawei’s bid for networking firm 3Com in 2008 and its attempt to sell wireless gear to Sprint Nextel last year were both blocked on security grounds.

Its frustration is understandable, but the danger in this strategy is that the issue will become embroiled in the fractious US-China hi-tech relationship. It also ties Huawei very publicly to the Chinese government.

FT speculates it may also prompt retaliatory action from Beijing, where the government has yet to approve Motorola’s acquisition of Nokia Siemens’ assets, which include some Huawei intellectual property.

Coincidence or not, rival ZTE is also showing signs of irritation, with CFO Wei Zaisheng recently complaining about US political interference.

“The government should promote a fair, equitable, normal and free commercial environment, and it shouldn't interfere,” he told Dow Jones.