Huawei putting US on hold

Analysts say US will remain an ultimate growth target

Huawei Technologies Co Ltd, China's largest maker of phone network equipment, is indicating it will abandon the United States carrier equipment market.

But analysts believe the company, based in Shenzhen, Guangdong, is eyeing European and Chinese markets for profit growth, while the US remains important to Huawei in the long term.

"Given the US carrier equipment market environment, Huawei is prioritizing its carrier business in markets that are open to competition, innovation and investment," said Huawei spokesman William Plummer.

"We remain committed to our customers, employees, investments and operations, and more than $1 billion in sales in the US. We stand ready to deliver additional competition and innovative solutions as desired by customers and allowed by authorities."

Plummer's statement came after Huawei CEO Ren Zhengfei told French media the company is pulling out of the US as it feels uncomfortable being stuck in the middle of a China-US trade skirmish.

"It's a good strategy to put the US aside for later exploration," said Ren, adding that the company will focus on the nation's mobile phone market.

"Huawei will not give up on the US market despite the unusual comment from the top executive," said Bryan Wang, head of Forrester Research Inc's China unit.

"The company will rush to serve any US telecom carrier once it gets an offer," Wang said. "It looks like Huawei is withdrawing, but it is mulling a strong counterattack in the US."

Wang suggested that the company should beef up its corporate business to spread the risk. Business with US telecom carriers accounted for 70 to 80 percent of Huawei's annual sales, according to Wang.

But some US government officials fretted that allowing Chinese companies, such as Huawei and ZTE Corp, to provide infrastructure products to local carriers would pose security risks.

Huawei and ZTE, both privately owned companies, have said repeatedly that their services do not have information safety problems.

On Nov 27, two US senators pressed the Obama administration to assess the intelligence risks posed to the US after Huawei was selected as a subcontractor for South Korea's telecom network.

Dianne Feinstein, D-Calif, chairman of the Select Committee on Intelligence, and Robert Menendez, D-NJ, who leads the Committee on Foreign Relations, sent a letter last week to Defense Secretary Chuck Hagel, Secretary of State John Kerry and James Clapper, the director of national intelligence.

The lawmakers expressed concerns that Huawei's involvement creates risks for the US-South Korea alliance, including for US troops based on the peninsula.

"Maintaining the integrity of telecommunications infrastructure is critical to the operational effectiveness of this important security alliance," the two senators wrote. "Reports that Huawei has been selected to develop and/or supply the Republic of Korea's advanced LTE telecommunications backbone raise serious questions and potential security concerns."

The appeal was only the latest attempt to drive Huawei out of the country's telecom industry.

But Huawei said there is no basis for US scrutiny of its contract to supply broadband equipment for the South Korean project.

"Our gear is world-proven and trusted, connecting almost one-third of the world's population," Scott Sykes, a spokesman for Huawei, said in an e-mail on Wednesday. "The motivations of those that might groundlessly purport otherwise are puzzling."

In 2012, the US House Intelligence Committee urged local telecom companies not to do business with Huawei and ZTE because of potential security threats.

Both companies denied the accusations.

Huawei became more active in Europe and China since the "intelligence risk" issue was aired, said Wang from Forrester.

The company is heavily invested in the United Kingdom and some Eastern European nations.

Huawei started to explore overseas markets about a decade ago. The company has a global research and development staff of 70,000.

The company also is receiving more opportunities in China. With the country issuing 4G licenses to Chinese carriers, Huawei, a major infrastructure vendor, is set to clinch contracts nationwide. It also is eyeing the consumer electronics market for growth.

Data from research firm Strategy Analytics said Huawei has emerged as the world's third-largest smartphone vendor as of the third quarter.

Its global shipments grew 67 percent annually to 12.7 million units in the quarter that ended in September.

In November, Huawei said that by 2018, it is poised to spend at least $600 million on fifth-generation mobile technology R&D.

The company hopes the move gives it an upper hand in any future 5G competition. The US is set to be one of the first markets to deploy that new network.

Bloomberg contributed to this story.