Huawei, Called a Security Threat by the U.S., to Focus on Other Markets

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SHENZHEN, China—Huawei Technologies Co. said it plans to refocus on existing markets, following a series of setbacks in the U.S. and as the technology industry gets caught up in the spiraling trade spat between Washington and Beijing.

“It is beyond myself to clearly explain what is going on between the two countries,”

Eric Xu,

one of the Chinese telecom giant’s three rotating CEOs, said at an annual meeting in Huawei’s home city of Shenzhen. He said Huawei will spend more effort serving existing customers.

The U.S. government has called Huawei, the world’s largest provider of telecom equipment such as base stations and routers, a national-security threat and has cited its potential dominance of next-generation 5G technologies. National-security fears were also behind the U.S. decision in March to block the takeover of chip maker

Qualcomm
Inc.

by then Singapore-based

Broadcom
Ltd.

on grounds that the deal could endanger American technological prowess. Huawei has long denied its products pose a security threat.

Huawei, the world’s third-biggest smartphone vendor, has also failed to secure distribution deals with U.S. carriers.

Mr. Xu’s comments come during a tempestuous week for the technology sector as some of its biggest companies are ensnared in escalating trade tensions.

The U.S. trade representative’s office Monday said it is looking for ways to retaliate against Beijing’s restrictions on U.S. providers of cloud computing and other high-tech services, arguing that Beijing unfairly restricts U.S. trade in these areas.

China requires U.S. cloud-computing firms, such as

Amazon.com
Inc.

and

Microsoft
Corp.

to form joint operations with Chinese companies and license their technology to the Chinese partners.

Alibaba Group Holding
Ltd.

operates three data centers in the U.S., two in Silicon Valley and another in Virginia. A person familiar with Alibaba’s business said its cloud-computing service in the U.S. is minimal and mostly for startups and Chinese firms, with no enterprise customers.

Also on Monday, the U.S. Commerce Department banned American companies from selling products to Huawei rival

ZTE
Corp.

for seven years, saying the company violated the terms of a deal last year settling allegations of sanctions busting involving North Korea and Iran. British cybersecurity officials, meanwhile, have warned U.K. phone carriers to stay clear of ZTE’s equipment and services. ZTE, the fourth-largest seller of handsets in the U.S., said Tuesday it is “assessing the full range of potential implications” from the ban.

Shares of smartphone-component companies in Asia fell Tuesday on concerns the ban will mean ZTE won’t be able to meet demand as it looks to find new suppliers.

ZTE, whose shares are listed in both Hong Kong and Shenzhen, didn’t trade Tuesday pending an announcement. The Shenzhen Composite Index fell 2.2%, outpacing declines in big-cap stocks in China, while the startup-heavy ChiNext Price Index in Shenzhen lost 3%. The declines were among the year’s largest one-day losses for those benchmarks.

A Chinese Foreign Ministry spokeswoman described the ban as “typical of unilateralism and economic hegemony,” adding that China and the U.S. depend on each other for mutual interest.

“If the U.S. continues to work against this trend, we will be prepared, we will be ready and we will launch our countermeasures,” she said.

Qualcomm has already been caught in the crossfire, suffering a delay in its effort to acquire Dutch automotive chip maker

NXP Semiconductors

NV, a purchase the San Diego-based company needs to diversify its product line as the smartphone market plateaus. Qualcomm has had to refile its application to China’s antitrust regulator for a review of the $44 billion purchase, people familiar with the matter said, a move that effectively extends the review period.

Huawei has largely been locked out of the U.S. since it and ZTE were the subject of a 2012 House Intelligence Committee report that warned telecom operators not to do business with the companies, saying they posed a national-security threat. Both companies have repeatedly denied the allegations, but Huawei has been unable to get major U.S. carriers to carry its smartphones.

Huawei has sought to make itself more open to outsiders in the wake of the 2012 report, but sales of networking gear and smartphones have been minimal in the U.S. even as they have grown elsewhere, including in parts of Europe. Last month, Huawei said its net profit rose 28.1% to 47.5 billion yuan ($7.55 billion) for 2017 on the back of strong smartphone sales.

In another sign of Huawei’s dimming U.S. expectations, the company last week laid off five U.S.-based employees, including its top spokesman in Washington, William Plummer, according to a person familiar with the matter. Mr. Plummer was one of Huawei’s most public defenders in the U.S. and spoke out aggressively against the company’s treatment there. Mr. Plummer wasn’t immediately available for comment. His departure was reported earlier by the New York Times.

Write to Dan Strumpf at daniel.strumpf@wsj.com



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