China Blames Cisco for Huawei’s U.S. Woes

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Analysts and government officials in China are rising to the defense of Huawei, saying its chief American rival, Cisco, is to blame for fanning the flames of suspected security risk of U.S. companies using Chinese-made telecommunications equipment. For its part, Cisco is using the controversy to rekindle Huawei's intellectual property theft record.

Who does China blame for stoked allegations that Huawei is bad for U.S. government agencies and businesses? None other than its chief American rival, Cisco Systems Inc.

As the controversy continues to grow in the U.S. over the security and economic threat posed by the China-based telecommunications company, Chinese media and analysts are signally defiance, saying Cisco is at the root of fabricated concerns as it tries to block Huawei’s rise.

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"Given that Cisco as a U.S. company may benefit most from the exclusion of Huawei and ZTE equipment from the U.S. market, it is very likely that Cisco has motives to play a role in advancing the investigation," said Chinese telecom industry analyst Xiang Ligang, in an interview with China.org.cn, a news site with ties to state media.

>> Copies of the Channelnomics Survey of Foreign Competition are now available. Click here for more information.

The allegations aren’t entirely unfounded. For several years, Cisco executives – from CEO John Chambers on down – have named Huawei as the company’s chief market threat, saying the company will undercut Cisco’s premium pricing to win market share.

Earlier this week, The Washington Post published a report detailing how Cisco orchestrated a year-long campaign to dissuade U.S. telecommunications companies from buying Huawei products. The Post obtained a seven-page memo authored by Cisco that described in detail how Huawei posed a threat to intellectual property and could be used by the Chinese government and military to undermine the security of U.S. interests.

Cisco did not confirm the authenticity of the memo. The Post and other observers have noted that the House Permanent Select Committee’s report labeling Huawei and ZTE risks to national security use similar language to the supposed Cisco memo.

Huawei's Vice President of External Affairs, William Plummer, called the drumbeat of disparaging comments from competitors “unfortunate.”

“Huawei prefers to compete based on the merit of its solutions rather than rhetoric.” Plummer told Channelnomics.

This isn’t the first the U.S. government has been accused of copying and pasting Cisco words in legal or government action. In the arrest and prosecution of Peter Alfred-Adekeye, a former Cisco employee and partner who was accused of intellectual property theft, a Canadian judge noted the clear similarities between Cisco’s complaint and the U.S. government’s affidavits.

U.S. analysts agree that the political climate and business lobbying in Washington are to blame for much of the Huawei hysteria. China’s rising economic power and potential to disrupt leading U.S. industries is enough to get lawmakers and business executives in a lather, they say. A Channelnomic’s survey found U.S. resellers believe foreign manufacturers are good for competition and partnership. However, the vast majority also said government security concerns will deter customers from considering products by companies such as Huawei and ZTE.

>> Copies of the Channelnomics Survey of Foreign Competition are now available. Click here for more information.

Cisco is saying that has and will continue to step up competitive pressure on all rivals, including Huawei, Hewlett-Packard, Juniper Networks and Dell. As part of its reorganization last year, Cisco pared down its product portfolio and increased focus on channel sales and execution. Cisco insiders and its competitors told Channelnomics the restructuring to a “partner-led” strategy was a reflection of Cisco recognizing it had allowed its channel to atrophy and give opportunity to rivals to capitalize. Competitors said the changes would, and did, make sales against Cisco harder.

The controversy is giving Cisco opportunity to rekindle Huawei’s record on intellectual property theft. The CBS news magazine 60 Minutes noted how Cisco sued Huawei in 2004 for stealing design specifications “down to the typos in the manual” for its data networking switches. Cisco did sue Huawei and the case was settled out of court. Cisco is now saying Huawei isn’t being forthright about its tainted past.

In two recent blog posts, Cisco’s general counsel Mark Chandler has called on Huawei to release the full report of its use of Cisco’s source code in routing equipment. “We urge Huawei to publish the full Neutral Expert’s Final Report in order to clarify what actually happened in the litigation, overcome any confusion and demonstrate their purported transparent business practices and respect for intellectual property rights.  In the meantime, we will continue to be diligent in protecting our intellectual property,” Chandler wrote.

While the U.S. government and businesses are shunning Huawei, the U.K. government is embracing investments by the Chinese company. Huawei is spending $1 billion on a new U.K. headquarters and will invest another $1 billion in local sourcing, creating jobs and infusing the economy with much needed cash.

Some observers in the U.S. and China have noted the Huawei controversy could escalate tensions between Beijing and Washington, and could even lead to a trade war. In that scenario, Chinese analysts say Cisco will be the ultimate loser as it earns 16 percent of its revenue from sales in China where Huawei only earns 4 percent of its revenue in the U.S.

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