Huawei subpoenaed by U.S. government

The world’s largest vendor of wireless networking gear is under scrutiny, as the U.S. Commerce Department tries to make sure Huawei did not resell sensitive American technology to Cuba, Iran, North Korea, Sudan or Syria. A government subpoena sent to Huawei’s U.S. headquarters in Texas and shared with The New York Times demands Huawei turn over all information related to its exports to those countries.
Although Huawei has not been accused of violating any U.S. laws or export restrictions, the Commerce Department may have decided to investigate the company because the other major Chinese supplier of wireless infrastructure, ZTE, did try to resell American technology to banned countries through shell companies. Some reports claimed ZTE modeled those shell companies on those of an unnamed competitor, which could have been Huawei. After news of ZTE’s trade law violations broke, some analysts predicted the U.S. government’s next step would be an investigation of Huawei.
Huawei has been a fierce global competitor to Ericsson and Nokia, largely because of its low cost structure. In the United States, wireless carriers do not buy radio equipment from Huawei because Congress has specifically asked them not to. Lawmakers said in 2012 they were worried about the presence of gear made by Huawei and ZTE in U.S. telecom networks because of possible ties between those companies and the Chinese government.
However, there are no restrictions on U.S. companies selling equipment to Huawei, and the company is a key customer for a number of chip vendors. The importance of Chinese customers to U.S. chipmakers became clear earlier this year when the government temporarily decided to deny U.S. applications to sell technology to ZTE. If similar sanctions were placed on sales to Huawei, the impact could be even greater.
“None of this is good for anyone in the wireless industry or the semiconductor industry, period,” said analyst Earl Lum of EJL Wireless Research. Lum thinks Huawei is being investigated for the same issues for which ZTE was investigated, but this time the consequences for other companies could be more severe. Other analysts agree.
“Given Huawei’s size (395 billion yuan in calendar year 2015, or $60 billion), the action could increase trade tension between the U.S. and one of its biggest trading partners, China,” said analyst Simon Leopold of Raymond James. Leopold foresees potential problems for some U.S. companies that supply Huawei.
“We see risk for companies supplying Huawei such as Finisar, NeoPhotonics and Lumentum within our coverage,” said Leopold. “Only NeoPhotonics offers quarterly exposure disclosures and Huawei has represented 48% of trailing four-quarter sales.”
Huawei is a major manufacturer of smartphones and enterprise networking gear as well as radio equipment. If the U.S. government prohibits exports to Huawei, companies that supply components for these will be impacted. It is possible that instead of sanctions, the U.S. government could try to fine Huawei, if it finds evidence of exports to countries that are considered unfriendly to the United States.
Follow me on Twitter.