Wake-up Call for Huawei and ZTE

The HPSCI Committee recommends that the US government systems (particularly sensitive systems), exclude equipment or components manufactured by Huawei or ZTE. The report also warns of the heightened threat of cyber espionage and predatory disruption or destruction of US networks if telecom networks are built by companies with known ties to the Chinese state.

It also talks about blocking acquisitions, takeovers, or mergers involving Huawei and ZTE given the threat to US national security interests. The committee also recommends investigation with respect to unfair trade practices, and attention should be paid to China's continued financial support to key companies.

Huawei and ZTE should rethink on their strategies and see where things have gone wrong and take corrective measures. Corrective measures are required as collectively more than 60% of their business comes from overseas. In case of Huawei, 67.8% of business comes from overseas whereas for ZTE, 54.2% business comes from international market and they cannot take things lightly.

Even the percentage growth in 2011 for overseas market is more than domestic growth. For Huawei, overseas revenue has grown by 14.9% vis-a-vis domestic growth of 5.5%. For ZTE, overseas has grown by 24% vis-a-vis 22.7% domestic growth. So, ZTE and Huawei need to rework on their strategy and focus on how to increase international revenue.

In international market, Huawei has achieved rapid growth especially in Europe, America, and the Commonwealth of Independent States (CIS). Even on Asia Pacific, the company has shown excellent growth in Hong Kong, Japan, Australia, and New Zealand. For Huawei, professional services in Europe has grown more than 60% and the consumer market in the US has exceeded 100% for the second year in a row.

On the other hand, in the case of ZTE, Europe, America, and Oceania region contribute 23.7% and Asia contributes around 18.1% of the overall operating revenue. All this makes it all the more important for the 2 Chinese companies to be more transparent as more countries will be bound to ask similar questions and would like to get satisfactory answers.

Huawei needs to provide details on its R&D programs where they are working for the Chinese military or intelligence agencies. The company also has to explain its ownership, history, and its relationship with the Chinese government or the Chinese Communist Party. Even ZTE need to explain their R&D activities related to military or government projects.

Huawei and ZTE will most likely face problems in markets like Canada, New Zealand, Australia, and other European countries. And this will further aggravate if these 2 companies do not take corrective measures as national security is a prime importance for all countries.