Huawei Defends Equipment Security Amid Spying Concerns

Photographer: Angel Navarrete/Bloomberg

A technician prepares lights hanging above the Huawei Technologies Co. pavilion at the Mobile World Congress in Barcelona. Huawei’s sales last year rose 8 percent to 220 billion yuan ($35 billion), helping boost net income 32 percent to 15.4 billion yuan. Close

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Photographer: Angel Navarrete/Bloomberg

A technician prepares lights hanging above the Huawei Technologies Co. pavilion at the Mobile World Congress in Barcelona. Huawei’s sales last year rose 8 percent to 220 billion yuan ($35 billion), helping boost net income 32 percent to 15.4 billion yuan.

Huawei Technologies Co. said it doesn’t pose a U.S. security threat as China’s largest maker of telecommunications equipment defends itself against foreign governments’ concerns that it aids intelligence agencies.

The Shenzhen-based company “never sold key equipment into U.S. networks,” Deputy Chairman Guo Ping said today after the company released its annual report. Huawei became one “of the world’s top three smartphone makers” in the fourth quarter and expects the proportion of sales from networking equipment, the area that has drawn foreign scrutiny, will decline.

Huawei is fighting concerns over cybersecurity in markets from the U.S. to Australia as American intelligence agencies and security companies traced web attacks to China. Softbank Corp. (9984) and Sprint Nextel Corp. told a U.S. lawmaker last month they won’t integrate equipment from the Chinese company into Sprint’s network after they merge, the legislator said.

“There has never been any incident of our product threatening cyber security or network security,” said Guo. Huwaei serves more than 600 telecommunications operators in more than 140 countries, he said.

“Since our installed base for telecom network equipment in the U.S. in the past and today was and is almost zero, therefore, there is no ability for Huawei to pose a threat to America’s cyber security.”

‘National Interests’

A U.S. congressional committee in October said Huawei and ZTE Corp. (763) provide opportunities for Chinese intelligence services to tamper with telecommunications networks for spying. Huawei was barred by the U.S. in 2011 from participating in building a nationwide emergency network.

Australia in March 2012 banned Huawei from bidding on a national broadband network citing “national interests.”

Huawei network equipment sales will fall to 60 percent of revenue by 2017 from 73 percent in 2012, said Guo, who is one of the company’s three rotating chief executive officers. Consumer devices will rise to 25 percent of sales in 2017 from 22 percent last year, driven by a push into high-end products, he said.

“There has been no material impact from this report on Huawei’s business” Guo said, referring to the U.S. congressional committee’s findings. While it had “difficulties” in the U.S., he said Huawei is “fully confident” about its growth.

High-End Market

Huawei today said it’s targeting 10 percent compound annual revenue growth in the next three to five years by expanding its smartphone and cloud computing businesses.

Sales last year rose 8 percent to 220 billion yuan ($35 billion), helping boost net income 32 percent to 15.4 billion yuan. The company in January projected revenue will gain as much as 12 percent this year.

“Huawei is the only one that has the capability to enter into high-end market,” said Bill Fan, an analyst at Guosen Securities Co. in Hong Kong. “It is the only Chinese brand that can produce a quad-core chipset.”

Huawei may also face additional restrictions in Canada, where the government is reviewing whether it needs rules to govern the equipment used by the country’s biggest mobile-phone operators, a person familiar with the matter said last month. Huawei, which supplies both Telus Corp and BCE Inc., has been barred from providing gear for Canadian government networks.

Military Background

Huawei, the world’s second-largest maker of equipment for phone networks, after Ericsson AB, was founded by Ren Zhengfei in 1987 after retiring from the Chinese military in 1983.

Ren reduced his role at the company since October 2011, when he split the role of chief executive officer with a panel of three executives who rotate at six-month intervals. Deputy Chairmen Guo, Xu Zhijun, and Hu Houkun are the co-CEOs. Guo took the title in October 2012.

Huawei “will not be the next to fall,” Ren said in the annual report today. “We are striding across the Pacific Ocean.” He didn’t specifically refer to the U.S. probe.

Huawei is employee-owned, with about 74,000 of the total 155,000 workers holding shares, according to its report.

Chief Financial Officer Meng Wanzhou, who is Ren’s daughter, in January said her father controls about 1.4 percent of the company. Huawei will keep “an open mind” on whether or not to become a public company through a share sale, she said in January.

To contact Bloomberg News staff for this story: Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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