Huawei relinquishes 3Leaf assets

Company asks for explanation for decision to revoke purchase from US government

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Huawei relinquishes 3Leaf assets Huawei has been forced to revoke its purchase of 3leaf systems after pressure from the US government.
By  Georgina Enzer Published  March 1, 2011

Huawei was recently forced to revoke its acquisition of virtualisation assets (intellectual property and staff) belonging to 3Leaf Systems after pressure from the US government. According to an open letter written by Huawei's deputy chairman of Huawei Technologies, Chairman of Huawei USA, Ken Hu, the US has been concerned about Huawei's relationship with the Chinese government.

The acquisition was worth $2m and was completed on May 31st 2010, but Huawei did not file the purchase with the Committee on Foreign Investment in the United States (CFIUS), which reviews deal for possible national security implications, until November.

CFIUS suggested that Huawei voluntarily divest the assets, but Huawei said that it would wait until an official decision from the White House. The company has now done a u-turn and is getting rid of all 3Leaf assets and has released an open letter from Hu.

The full letter follows below:

We would like to provide the basic facts behind the recent 3Leaf matter that has been the subject of much attention and discussion about Huawei. These facts will not only help understand the real situation behind the proposed acquisition, but also Huawei's position on this matter. They will also clarify some long-standing and untrue rumors and allegations regarding Huawei. 

Futurewei, Huawei's US subsidiary, purchased certain assets from 3Leaf, an insolvent technology start-up located in Santa Clara, California, in May and July 2010, when 3Leaf was ceasing its operations and no other buyers for its intellectual property were forthcoming. Huawei submitted a timely request to the Bureau of Industry and Security at the Department of Commerce in advance of completing the purchase in May and the Department of Commerce certified that no license was required to export the 3Leaf technology. After learning that CFIUS was interested in the 3Leaf transaction, Huawei submitted draft and formal voluntary filings to initiate a CFIUS review of the transaction in November 2010. 

On February 11th, 2011, CFIUS formally notified Huawei that it recommended that Huawei withdraw its notice under terms dictated by CFIUS. We originally decided to decline the offer with an intention to go through all of the procedures to reveal the truth about Huawei. However, the significant impact and attention that this transaction has caused were not what we intended, and on February 18th, we decided to accept the recommendation of CFIUS to withdraw our application to acquire specific assets of 3Leaf. 

The United States of America is a great country and one for which Huawei has always had the utmost respect. The values of democracy, freedom, rule of law and human rights in the US are the very values that we at Huawei respect, advocate, and live by. As a company, we are learning much from our close links with the American people. In his inauguration speech, President Obama said, "On this day, we gather because we have chosen hope over fear, unity of purpose over conflict and discord. On this day, we come to proclaim an end to the petty grievances and false promises, the recriminations and worn-out dogmas that for far too long have strangled our politics." We share that vision, and it is the foundation on which we have sought to build our cooperation with American firms as we have invested and grown our business in the United States over the past decade. 

Huawei Technologies, founded in 1987 in Shenzhen, China, is a private company owned entirely by its employees. We are currently the second largest telecommunications equipment provider in the world. 

Huawei is committed to being a long-term investor in the United States where we already have over 1,000 US employees. In 2010, we purchased products and services from American companies totaling some $6.1 billion. Our investment in research and development activities in the United States has grown by an average of 66% per annum and it reached $62 million in 2010. We have long been offering innovative products and services to our customers in the United States and we have always been a responsible investor, employer, taxpayer and corporate citizen. 

Unfortunately, over the past 10 years, as we have been investing in the United States, we have encountered a number of misperceptions that some hold about Huawei. These include unfounded and unproven claims of "close connections with the Chinese military", "disputes over intellectual property rights", "allegations of financial support from the Chinese government", and "threats to the national security of the United States". 

These falsehoods have had a significant and negative impact on our business activity and, as such, they must be addressed as part of our effort to correct the record. 

First, the allegation of military ties rests on nothing but the fact that Huawei's founder and CEO, Ren Zhengfei, once served in the People's Liberation Army. Born on October 25th, 1944 into a rural family where both parents were schoolteachers, Ren spent his primary and middle school years in a remote mountainous town in Guizhou Province, and studied at Chongqing Institute of Civil Engineering and Architecture, where he graduated in 1963. He was employed in civil engineering until 1974 when he joined the military's Engineering Corps as a soldier tasked with building the then French-imported Liao Yang Chemical Fiber Factory. From there, Ren was promoted to Technician, Engineer and Deputy Director, a deputy-regimental-chief-equivalent professional role that had no military rank. Because of his outstanding performance, Ren was invited to the National Science Conference in 1978 and the National Congress of the Communist Party of China in 1982. 

After retiring from the army in 1983, when China's central government disbanded the entire Engineering Corps, Ren became dissatisfied with his job at the logistics service base of the Shenzhen South Sea Oil Corporation and decided to establish Huawei with $2,500 in capital in 1987. He became the President of Huawei in 1988 and has held the title ever since. 

It is a matter of fact that Ren is just one of the many CEOs around the world who have served in the military, and it is also a matter of fact that Huawei has only offered telecommunications equipment that is in line with civil standards. It is also factual to say that no one has ever offered any evidence that Huawei has been involved in any military technologies at any time. 

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