Telecoms: More of the Same for Huawei, ZTE 美国对华为和中兴展开新的调查

By newsdoug on June 15, 2012

There are a few interesting telecoms tidbits out today, led by what seems to be an increasingly redundant refrain of the latest woes being faced by quickly fading telecoms equipment superstars Huawei and ZTE (HKEx: 763; Shenzhen: 000063), who are now the subject of a new security probe by US politicians. ZTE is also in the headlines for its own announcement of an interesting new tie-up in the teleconferencing space, which is part of its ongoing drive to diversify into less controversial products beyond its core networking equipment business. And last but not least, Apple (Nasdaq: AAPL) is flexing its muscles in China by getting local Internet search leader Baidu (Nasdaq: BIDU) to agree to an unusual revenue-sharing agreement in exchange for inclusion of Baidu’s search engine in a new China-friendly iPhone. Let’s start with the Huawei and ZTE news, which has the US House of Representatives questioning the pair about how they do business in a bid to determine what, if any, security risk their network equipment might pose to unsuspecting buyers. (English article) I almost didn’t even notice this report as it looks so similar to a steady stream of similar ones that have come out in recent weeks, all about Western governments probing Huawei and ZTE for not only for security risks, but also for unfair subsidies from Beijing. Adding to the woes, a couple of employees from both companies were found guilty earlier this week of bribery in an Algerian court, casting further doubt on their business practices. (previous post) In response to all the scrutiny, both companies have been trying to diversify from their traditional networking equipment into smartphones and other less controversial products, which leads to my second news bit, which has ZTE pairing with US company Vidtel to offer videoconferencing services in North America. (company announcement) The tie-up will pair equipment from ZTE with services offered by Vidtel, in what looks like an interesting effort to provide a lower-cost alternative to products and services now offered by companies like networking equipment giant Cisco (Nasdaq: CSCO) and videoconferencing equipment makers Tandberg and Polycom (Nasdaq: PLCM). This move looks smart for ZTE, which has been particularly aggressive in developing its smartphone business in the last 2 years, though at a big cost to its profit margins. If this new tie-up can provide a reliable product, then this tie-up could provide some serious competition for existing players not only in North America, but perhaps in other western markets as well. Lastly there’s Apple, whose tie-up with Baidu was initially reported last week and is part of a broader drive that will see the US tech giant load more China-friendly features into a new iPhone for the China market. (previous post) What’s new in this latest news bit is the revenue sharing agreement. Hardware makers rarely have the clout to demand such agreements with service providers, but Apple’s iPhones are so popular that it can often demand such concessions in exchange for giving access to its phones. Look for more such revenue sharing agreements by Chinese firms looking for space on the new China-friendly iPhone, helping Apple but making such tie-ups less profitable for its China service partners.

Bottom line: A new US security probe against Huawei and ZTE shows the pair’s telecoms equipment may never gain broad acceptance in the west, and they should focus on other products instead.

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