Huawei is here to stay

Feb 23, 2012

Michal Lev-Ram has been a senior writer at Fortune since 2011, writing frequently about technology.

FORTUNE -- Last week, China-based Huawei unveiled its latest effort to make nice with corporate America, announcing it will spend more than $6 billion on processors and other components from Broadcom (brcm), Qualcomm (qcom) and Avago Technologies (avgo). The company has spent the last few years trying to reshape its image as a big, bad network provider that doesn’t play by the rules into a transparent, law abiding and innovative technology player. But many government officials are still skeptical of the security of the Chinese company’s products, and you can bet U.S. competitors like Cisco (csco) will do anything to keep Huawei from eating their lunch here (like they do abroad).

John Roese, general manager of Huawei’s North American R&D division says investing in innovation is the key to changing the company’s image. But he also says that whether America likes them or not, Huawei is here to stay. I recently caught up with Roese -- and toured Huawei’s Silicon Valley R&D center -- to find out more about the company’s push into the U.S. market.

Fortune: You’ve had legal issues with U.S. companies and have been criticized for selling to Iran and the Taliban. How are you trying to change this image?

Roese: There is a historical perspective and maybe even a biased and uninformed perspective of who Huawei is and what we do. We’re now beginning to communicate our role around innovation. You can hear all of the noise, it’s loud and very disruptive, but on the other side you start to hear a story about innovation. The information on the noise side might have been true in 1999 or 2004 but today if you really understand how the industry operates and what’s going on in technology, many of those assumptions do not apply. If someone were to try and protect the US market from foreign technology none of us would have a cellular network. We wouldn’t be able to build these infrastructures because these infrastructures come from global companies. Even the companies that are in the US are spread out across the globe -- their technologies are developed in other countries, their manufacturing is in the same factories that our manufacturing comes from. But we’re very patient in the U.S. Even if you don’t like us, at some point if the best technology and the best innovation is coming from Huawei, eventually it becomes a competitive disadvantage for your country to avoid it. We are just another global entity. We are just like any of the global entities that you know of. You just don’t know us that well. My job is to try and help teach who we are and what we do.

MORE: Is Cisco back?

What’s the current strategy in North America?

A few years ago Huawei was going through a cathartic moment. They had done an exceptional job out-executing everybody. The problem is that if you do that very well eventually you are no longer a follower, and the expectation to innovate is significantly higher—you have to define the networking industry. So one of the decisions they made was that that innovation could not exclusively happen in China, because if we’re going to do everything from cloud to photonics, we better figure out an innovation strategy that’s going to be much broader. When I walked in the door [in 2010] we had roughly 300 people, now we’re at about 1,000, and they’re all senior-level technical staff. We want to be the tip of the arrow. We don’t care about previous or existing projects, we want to know where the industry is going, whether it’s developing the next network processor or navigating the cloud era. At the same time, we are in market that the company views as our last emerging market. Nobody would put their headquarters in a country they have no business in. We on the other hand have put a lot of our R&D capacity in the center of a market that we’re still figuring out how to navigate.

How are you doing in the U.S.?

I got a lot of reactions because I once called the U.S. a “developing” market. Most companies like Cisco or Ericsson look at China as a developing market, but for us we look at the U.S. as a developing market. It’s not that it’s an undeveloped market, it’s just that learning how to navigate it is new to us. But even though the revenue stream is not significant from the U.S. you can see that we’re fully engaged on the R&D side. Huawei spent between $200 million to $300 million in the U.S. just on R&D last year. We’re doing very well in our terminal business and you can buy Huawei tablets and smartphones in stores. The carrier business has done okay for us but we’re largely excluded from the top four operators. But we’re persistent. We’ve now entered the enterprise market in the U.S. That’s brand new and it will take a couple of years to build up our critical mass there.

MORE: Why China wants a piece of the U.S.

What kind of technologies are your labs working on?

The biggest thing is cloud. Like virtualizing the data center is a good idea but if that’s cloud we have wildly undershot. The real objective of the cloud is to build this utility-based environment that is internet scale, that is not just the data center. So what we’re doing here is we’re rethinking how we can navigate that cloud era. How can we get to a point where the cloud is not just to a traditional data center virtualized but it’s actually includes the radio access networks, the wireless environments, the internet infrastructure, the enterprise environments. If all of it is virtualized then you can start thinking very intelligently about placing services anywhere on the internet. There’s lots of other things like faster networks. We’re also rethinking things like e-education or e-healthcare.

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