Huawei's 3Com deal flops

Bruce Einhorn
28 Feb 2008

This isn't exactly a shocker: Huawei has suffered a major setback* in its bid to buy a stake in 3Com. The Chinese telecom-equipment company has been trying for months to be the junior partner in a deal led by Bain Capital to take over 3Com in a proposed $2.2 billion deal. (I wrote about why Huawei would be interested in 3Com here.)

It didn't take long for opposition to the deal to build in the U.S., though, as lawmakers in Washington griped about the security implications of a Chinese company allegedly tied to the People's Liberation Army (a charge that Huawei has consistently denied) gaining access to a second-tier American company. (Here's a link to something I wrote about that opposition back in October.) And now the companies are withdrawing their application to the Committee on Foreign Investment in the U.S.*

No doubt many Chinese (and friends of China) will see this setback for Huawei as another sign of a protectionist, anti-China agenda in the U.S. But hold the indignation for a moment. Huawei has largely itself to blame for this flop. One reason people worry about Huawei is because its founder and CEO, Ren Zhengfei, is a former PLA officer. But rather than allay concerns that he's somehow still connected to the military, Ren has stayed in the background. While Huawei often makes other executives available for interviews, that openness ends with the CEO. (Trust me, I've tried - many, many times - to get an interview. Nothing.) When the boss won't talk, that doesn't exactly inspire confidence among people already inclined to distrust the company.

Compare Huawei's case with that of another Chinese tech company that made a big move in the U.S.: Lenovo. China's top computer maker bought the PC division of IBM in 2005, and while some people grumbled about security implications, the deal went through. In part, that's was because Lenovo is a public company and isn't as mysterious as the privately-held Huawei. And Lenovo's top executives - especially chairman Yang Yuanqing - are not at all shy about speaking to reporters and telling their story. That reassured would-be skeptics that the company had nothing to hide.

Will Huawei learn a lesson from this flop and adopt a more open PR policy‾ I hope so, but I doubt it.

* Update: Note that originally I wrote that Huawei had "called off" its bid and the companies were "throwing in the towel." But, as you can see from comment below from the 3Com spokesman, the company says that Huawei and Bain Capital have not abandoned the bid but have withdrawn their application to the Committee on Foreign Investment in the United States. The spokesman adds that companies will continue to try to figure out a way to make the deal work, but don't hold your breath.

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