Chinese spying law, no idea what you mean – Huawei Chairman

Huawei Chairman Liang Hua is the latest to enter the fray to defend the principles and reputation of the telco vendor, this time questioning the legitimacy of accusations.

Speaking during a roundtable session in the wings of Huawei’s latest London event, Hua gave a measured representation of the firm. Once again, Hua put forward the idea of assessing technology and security on merit and evidence instead of political rhetoric, but the Huawei boss also questioned the legitimacy of accusations levelled at the vendor.

“When we are operating globally we are committed to be compliant with regulations in that country,” said Hua.

This is one of the statements which Huawei executives have used consistently through the saga. Huawei is a global organization with customers in more than 130 countries. It operates in utter compliance with local laws and regulations, otherwise it would undermine customer confidence and validity of the firm in that market. Anything aside from compliance would destroy its own business and doom the firm to failure.

This statement is all well and good, though many will still wonder with caution. There is after all a Chinese law which forces companies to adhere to the demands of the government.

Or is there? Hua is adamant there isn’t.

“Chinese officials on many occasions have stated there are no laws which require enterprises to collect information for the government,” said Hua. “So far, we haven’t received any requests of this kind from any department.”

The denial goes all the way to the top as well. Back in March, Premier Li Keqiang firmly denied the government would, or has, forced Chinese companies to assist it in intelligence gathering activities.

“This is not how China behaves,” said Keqiang. “We did not do that and will not do that in the future.”

Technically, Hua is correct in denying the law exists explicitly. There are no such laws written to suggest Huawei, or any other Chinese firm for that matter, would have to relay information to the Chinese government or insert backdoors into software. It isn’t in concrete language.

However, there is a law which requires Chinese firms to ‘co-operate’ with state departments for ‘intelligence activities’. The way in which it is written is suitably vague enough to ensure wiggle room on both sides. In theory, the government could compel Huawei to assist, however, there are also safeguards built in to prevent ‘abuse’.

Under Chinese law, government departments are banned from forcing a company from acting against ‘legitimate’ or ‘legal’ interests. Technically, if it is bad for business or illegal in the country of operations, Huawei can refuse the request from the government.

There might be some who still don’t believe this position, questioning the nuance of language. However, Hua has endorsed recent statement from founder Ren Zhengfei, where the media-shy former executive promised to shut down the company if he or any employee was forced to act as a puppet of the Chinese state.

Whether anyone actually believes this statement is down to personal opinion, but always remember, shutting down Huawei would cause as many problems as it solves. Huawei is renowned for its post-sale customer service, and any vendor would have to prove its customer support credentials for the lifecycle of products it sells. If the company just shut down, all of Huawei’s customers would be on their own, attempting to maintain products in the wild when they do not have the personnel to do so.

Opinions on how deeply embedded Huawei is in the Chinese government’s pocket vary quite wildly, though it is always worth remembering the facts instead of being swept away in the political rhetoric. There is a law which compels Chinese companies into acting on behalf of the government, but there are also clauses which mean the company can refuse to do so if said actions would mean breaking the law in that market.

Huawei is a company which is in a sticky position right now. Of course, there are still markets where the firm will make billions, but there are others where the risk of limited operations or being completely shut out is present. The question is what approach will these precarious markets take?

“Cybersecurity is indeed an important element,” said Hua. “We are happy to see the cyber security issue raised and we believe it is a technical issue at the core.

“The UK government has established a good mechanism to identify and mitigate risks.”

This is the approach Huawei has been pleading with governments around the world to take. Speaking in Shenzhen last month, cybersecurity boss John Suffolk told an audience of journalists Huawei had passed every security and resilience test which had been presented to the firm.

“Being a Chinese company means the spotlight will always be on you in some places, that is not our fault but something we will deal with,” said Suffolk.

Huawei is attempting to move the conversation back to technology. If it remains in the realms of politics, it will lose. Such is the political power of the US, eventually trade partners will crack. But this also leaves the UK in a very sticky position. It is reliant on the ‘special relationship’ which is so frequently brought up, but the silk road is lucrative.

Unveiled at the same London event, an Oxford Economics report suggested Huawei has a £1.7 billion impact on the UK economy. This is through direct employment and tax, indirect employment through its supply chain and also induced impact from the money spent by those employed directly and indirectly. Critically, Huawei also inspires a notable amount of R&D in the UK.

While the £1.7 billion contribution to the national economy is only 0.01% of total GDP, the £112 million R&D expenditure in the UK during 2018 accounted for 0.3% of the total in the UK. Huawei is punching above its weight from a monetary contribution, and the 35 partnerships with UK universities is also a factor to consider. Increasing R&D investments across the country is a key ambition of the UK government, therefore it will want to tread carefully around Huawei.

Another factor to consider is the direct investment made by Huawei in the UK. It currently employs 1600 employees in the UK, each contributing 3X more to the economy (tax, output, expenditure etc.) than the average UK employee. Most importantly however, this is an industry with further room for growth, which doesn’t displace any UK business.

The more successful Huawei is, the more success is brought into the UK economy and society, should current investment trends continue. However, Huawei’s direct competitors are Swedish and Finnish. These companies do have operations in the UK, though the displacement effect will be felt more in the Nordics than here.

Although the final decision from the UK’s supply chain review is due to be released in the next couple of weeks, you can see why the investigation has taken so long. There are plenty of moving parts to consider and, while it should not be considered a silver bullet, Huawei’s presence and investment in the UK means a lot to the economy and society.

Huawei enters 2019 swinging with $108.5 billion revenues

To say 2018 was a rollercoaster ride for Huawei would be somewhat of an understatement, but the New Year’s message from Rotating Chairman Guo Ping is one of defiance.

Ping has proudly stated the business has reached record sales revenues in 2018, $108.5 billion, signed 26 5G commercial contracts with telcos, shipped more than 10,000 5G base stations, tempted 160 cities and 211 Fortune Global 500 companies into digital transformation contracts and shipped more than 200 million smartphones.

The company might have been the antagonist in the Great Security Saga of 2018, but it is still moving in the right direction. That is, for the moment at least. This message from Ping is one of reassurance. Huawei is proactively seeking to engagement the community, promising everything is above board and legitmate. This is a business which is scrapping for its reputation.

“It has been an eventful year, to say the least,” said Ping. “But we have never stopped pushing forward, and as a result our 2018 sales revenue is expected to reach 108.5 billion US dollars, up 21% year-on-year.”

Reading between the lines you have to wonder whether the business is worried about its dependence on the US. Prior to Christmas, Rotating CEO Ken Hu promised the company’s supply chain was in a stronger position than ZTE, and there was no chance a ban from using US components and IP would create the same disaster zone. Ping seems to be reiterating this message.

“In 2019, we will focus on strategic businesses and strategic opportunities and build a more resilient business structure,” said Ping. “We will continue to optimize our product investment portfolio to achieve end-to-end strategic leadership. As part of this, we need to retain products that are competitive and appealing and phase out those that aren’t.”

Huawei are in a worrying position right now, teetering on a knifes edge. On one side, you have an incredibly successful and innovative business, with a proven track record of delivering results and a culture of account management rivalled by few. This is a vendor a lot of telcos will want to work with. However, with the echoes of accusation getting louder, governments excluding it from 5G bonanzas and the possibility of being banned from using any US goods in its supply chain, some will naturally be nervous about entering into any commercial contract.

The security concerns which plagued Huawei for the majority of 2018, accelerating in the final quarter, look like they will continue over the next couple of months but there hasn’t been an immediate impact on the business just yet. With numerous contracts already secured, Huawei is certainly not going to disappear from the connectivity landscape, but in choosing not to mention any financial predictions for 2019, Huawei has effectively stated what we are all thinking; its dominance is coming to an end.

Looking at the major vendors across the 4G era, the story was relatively clear; Huawei freely counted the cash at the expense of others, most notably Ericsson and Nokia. This will not be the story for 5G as more telcos look for greater diversity in the supply chain and governments place more scrutiny on Huawei, as well as Chinese vendors in general. Perhaps there will not be such a clear winner in the 5G era, with the bounties being more evenly spread throughout the ecosystem.

Huawei is promising to be more secure, more transparent and more innovative than competitors, and it needs to be. But we suspect the damage has already been inflicted. Success seems to have been the downfall for Huawei, forcing the company into the limelight and raising its profile so much questions were bound to be asked. Huawei will certainly continue to be a heavyweight in the connectivity industry, but its era of such spectacular dominance seems to be over.

Ericsson picks a new Chairman

The Nomination Committee is proposing former Atlas Copco CEO Ronnie Leten as the new Ericsson Chairman, replacing Leif Johansson.

Leten headed up Swedish industrial equipment maker Atlas Copco for eight years, during which its share price seemed to have out-performed the market. Ericsson’s share price, by contrast, has halved in the last couple of years. The 60-year-old Leten stapped down as CEO earlier this year and will also relinquish his chairmanship of Electrolux to take this gig.

This would appear to complete the executive overhaul of Ericsson by its largest shareholder – Investor AB – which owns almost a quarter of its voting rights. Current CEO Börje Ekholm used to be CEO of Investor AB and, by bizarre coincidence, Investor AB has a similar proportion of the voting rights of Atlas Copco. It seems to have taken a few pages from the Vivendi playbook.

The Chairman of the Nomination Committee is, of course, Johan Forssell, who just happens to be CEO of Investor AB. “The Nomination Committee believes that in Ronnie Leten, we have found the right person to assume the position as Chairman in Ericsson, providing experience and competence that will benefit the company,” said Forssell.

“Ronnie Leten has a very strong track record when it comes to value creation. Mr Leten is a very skilled businessman, technically savvy and strategically versatile. Furthermore, he has significant experience from digitalization of major operations, which will be beneficial for Ericsson’s focused work together with its customers.

“In addition, the Nomination Committee proposes Kurt Jofs as a new member of the Board. With Mr Jofs’ deep knowledge of and background from the telecom and IT-industry, not least from his previous tenure at Ericsson, we believe that he will contribute complementary skills and experience to Ericsson’s Board. With these changes, the Nomination Committee believes that the company is given the right conditions for realizing its long-term potential.”

Jofs is currently Chairman of Finnish IT services company Tieto and incongruously seems to have no direct link to Investor AB. He was, however, Networks EVP at Ericsson from 2003-2008 and is Swedish, so seems qualified on paper. One thing that is worth noting is that Cevian Capital is both the largest single shareholder in Tieto and also represented on the Ericsson Nomination Committee.

So both the CEO and the Chairman (presuming the formality of his shareholder approval is completed) of Ericsson seem to have been put in place by Investor AB, presumably with the blessing of other significant shareholders. This is probably as it should be, but they surely now have no grounds for complaint if the company fails to turn things around.