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At Huawei, Matt Bross Tries to Ease U.S. Security Fears


(Corrects reference to possible deal with Motorola for Huawei's network infrastructure business in fourth paragraph.)

Matt Bross lives in Flint Hill, Mo., a town of 460 people about an hour’s drive northwest of St. Louis. A long driveway leads over a babbling brook to his six-bedroom, seven-bathroom mansion situated on dozens of picturesque wooded acres. It then winds past a statue of Jesus, a 1923 Model T Ford, a horse-drawn carriage, and a flagpole worthy of the Pentagon. The backyard is a Norman Rockwell-meets-Donald Trump spectacle: A baseball diamond and Ferris wheel flank a Bellagio-inspired pool with water slides and dancing fountains. Inside, guests can hit up the bowling alley and Skee-Ball ramp or take in a show in the movie theater. The main room of note, however, is in the basement. It’s the strategic command and control center of Huawei, the giant Chinese communications equipment maker for whom Bross is chief technology officer.

The space looks like a typical office conference room, with its big wooden table in the middle and eight plush leather chairs. Against the back wall is a giant TV equipped with a Huawei videoconferencing system. During a visit to the office in June, Bross (rhymes with “floss”) plops his heavyset frame down at the table, picks up a touchscreen device, and demonstrates how he can video chat with various Huawei offices. He manages much of Huawei’s $2.5 billion R&D budget and tens of thousands of engineers. There’s a button for the company’s headquarters in Shenzhen, another for its U.S. home base in Plano, Tex., and still others for research and development facilities in Mexico, India, Vietnam, Bangladesh, Thailand, Chile, Sweden, and 13 other places. He runs through the design of a forthcoming networking switch with some engineers, then shifts to business talk with sales prospects. “You look like the prettiest date at the dance,” Bross tells a customer, pouring on the Midwestern charm.

When Huawei hired Bross two years ago, it stunned the technology industry. Bross has a long, decorated history in telecommunications, making him a natural choice for a hard-charging company. Still, Huawei had always run a secretive operation and picked its top managers from China. With Bross, Huawei was inviting a foreigner, Ozark drawl and all, into its upper ranks, putting him in charge of the company’s entire technology agenda and asking him to help win sales in North America. And Bross was granted the freedom to do all this from his basement, thousands of miles from the home office in Shenzhen.

Bross is part of Huawei’s effort to become a modern multinational company in the vein of an IBM (IBM) or a Siemens (SI) that can send managers around the world, hire top talent in places such as the U.S., Europe, and India—and do all that without giving people the creeps. Huawei was founded in 1987 by Ren Zhengfei, a former technician in the People’s Liberation Army who had 21,000 yuan (about $2,500) in his pocket and a dream of selling telecommunications equipment. Ren moved from reselling other companies’ gear to making his own, and Huawei flourished selling routers and switches, the core components of phone and Internet networks, in rural China. Then it expanded into Latin America, Africa, and Eastern Europe, using low, low prices to undercut Alcatel-Lucent (ALU), Ericsson (ERIC), Motorola, and Cisco Systems (CSCO). In 2003, Huawei nearly sold its network infrastructure business to Motorola, says Huawei Deputy Chairman Xu Zhijun, but the deal died after a Motorola management shakeup.

More recently, Huawei has moved beyond cheap copycat gear toward more sophisticated networking equipment. The products have been good enough to win 45 of the world’s 50 largest communications providers as customers. Now Huawei is in the process of expanding beyond its traditional customer base of telecommunications companies to offer networking products and cloud computing services to businesses, as well as smartphones and tablet computers to consumers. Last year the company posted revenue of $28 billion, up from $1.9 billion in 2000, making it the largest technology vendor in China. It employs 110,000 people scattered all over the globe.

Yet for all its recent success, Huawei’s accession to the global scene has been awkward. Its corporate culture tends to come off somewhere between xenophobic and absurd to local critics. Sample headline published last year in the Times of India: “Huawei Technologies Bans Indians in India.” (Huawei says there’s no discrimination at its Indian facilities.) More pressing, though, is the reputational baggage tied to the company’s founder. Pundits wonder whether China’s premier technology company, a privately held organization run by an ex-deputy director of the army’s engineering corps and former delegate to the Communist Party’s national congress, can overcome suspicions among politicians, security officials, and would-be customers outside China. “Huawei is a large company with state-owned interests involved, and also Chinese military linkages,” says Srikanth Kondapalli, a professor at the Center for East Asian Studies at Jawaharlal Nehru University in New Delhi. “So one of the concerns is what these guys are up to.”

Security fears nearly shut down Huawei sales in India last year following a government move to blacklist Huawei and another Chinese supplier. Only after nine months and, as Huawei India Chief Executive Officer Yang Kaijun, puts it, “hundreds of meetings” did Huawei persuade Indian regulators to relent. Huawei executives like to emphasize the company’s commitment to India, including a $200 million investment in a new R&D center in Bangalore, but suspicions persist. Says Pradip Kumar Das, an engineer who works at the Bangalore R&D site: “People easily believe propaganda about Huawei.”

 

Nowhere has this security question come to more of a head than in the U.S., the world’s largest telecommunications equipment market. Federal officials have accused the Chinese government of giving Huawei unfair financial aid, allowing it to undercut rivals in bids for huge contracts. Huawei has also faced accusations of intellectual-property theft, including a case where software source code belonging to Cisco was found on Huawei routers. The companies settled a lawsuit in 2004 after Huawei agreed to stop selling some products and alter certain designs.

The most serious charge, however, has been that Huawei threatens U.S. national security. Legislators have warned that the Chinese government could tap into Huawei gear sitting at the heart of phone and Internet networks and spy on communications. Over the past three years, members of the government have used such allegations to block Huawei’s attempts to acquire American companies and win deals with AT&T (T), Verizon Communications (VZ), and Sprint Nextel (S). Senators Jim Webb (D-Va.) and Jon Kyl (R-Ariz.) issued a statement in February urging the government to block an acquisition of a defunct Silicon Valley startup, saying even that minor deal “could pose a serious risk to America’s national and economic security.” The statement went on to tie Huawei with the Chinese military, the Taliban, and the Iranian Revolutionary Guard. “We are convinced that any attempt Huawei makes to expand its presence in the U.S. or acquire U.S. companies warrants thorough scrutiny,” the senators wrote.

Huawei responded by hiring armies of lobbyists, who are only too happy to present a 17-page slide deck that rebuts all the accusations and details how much money it spends—and jobs it creates—in the U.S. “Sure, there is pushback in the U.S.,” Bross says, but that’s a good thing because “securing the nation’s infrastructure is of huge importance.”

At the forefront of Huawei’s hearts-and-minds campaign is Bross. He certainly doesn’t come across as a double agent—but then, few double agents do. At 50, he has a paunch, soft blue eyes, a brownish-blond mustache, and mildly thinning hair of the same color. He resembles a younger Wilford Brimley minus the glasses. His take on Huawei-hating is that it’s a very large misunderstanding fueled by political tensions between the U.S. and China. Huawei doesn’t want to spy on Americans, he says. It just wants to save them money.

A self-taught electronics whiz, Bross began his career at General Electric (GE) and later had technology jobs at Citicorp (C) and MasterCard International (MA). Before going to Huawei, he was CTO of BT Group (BT), one of the highest-profile technology gigs in the telecom industry. Bross spearheaded BT’s 21st Century Network, an ambitious project to revamp the telco’s infrastructure. Equipment suppliers fought to win the lucrative contracts from BT, and Bross helped Huawei secure a pair of major deals. Like many executives before him, Bross saw the low cost of the Huawei gear as a no-brainer. Huawei then eased the British government’s fears by agreeing to pay for a facility where its hardware and software could be examined. Huawei executives often point to the BT win as a seminal moment in the company’s history. It established Huawei as a legitimate player in the West and—for a short while—eased some security concerns by showing that even the U.S.’s closest ally was willing to accept the company.

Bross jumped to Huawei in 2009. As CTO, he’s house visionary, assigned to anticipate trends and make sure Huawei has the right products at the right time. Bross has a second title, vice-chair of U.S. business, which also makes him salesman-, recruiter-, and lobbyist-in-chief. In that role, a big part of the job is correcting some of the missteps committed by the company in the U.S.

Huawei has been in America for about a decade and at first tried a brute force approach to cracking the market. When, for example, it wanted to win a $3 billion deal from Sprint, Huawei enacted an all-out lobbying effort in Washington. It helped set up a company with the reassuring name Amerilink Telecom to resell Huawei gear to Sprint. Amerilink had big-name board members such as former congressman Richard A. Gephardt and World Bank ex-President James D. Wolfensohn, who gave the enterprise a political class seal of approval. It didn’t work. Lawmakers raised security concerns and blocked the Sprint deal, and Amerilink disappeared. (Huawei says it didn’t put money into Amerilink, but merely agreed to reselling contracts in the U.S.)

From his basement lair, Bross talks about a milder strategy. Huawei has significant deals with smaller telecommunications companies such as Clearwire (CLWR) and Leap Wireless International (LEAP). As for the big guys—AT&T, Verizon, Sprint—it’s pursuing smaller-scale projects where it can bend over backwards to meet some need, outflanking other suppliers unwilling to do such one-off work. “The key is to start small and do business bid by bid,” Bross says. “You have to work within the capacity of your brand.”

There’s an endurance-test aspect to all of this. Huawei is chasing subtle infrastructure wins that won’t ruffle too many feathers in Washington. Meanwhile, it’s filling stores like Best Buy (BBY) with the cheapest tablets and smartphones around. Huawei’s S7 tablet sells for around $200, and a handful of smartphones go for less than $100. There seems to be a hope that one day everyone will wake up and just accept that Huawei is that nice Chinese company that saves people money.

Apart from technical cred and disarming demeanor, Bross brings Huawei a Rolodex that includes just about every major equipment purchaser in the country. At his house, a parade of Huawei executives and customers come and go, either in person or on the videoconferencing system. All of the Huawei people once held senior positions at rivals or potential customers.

Scott Widham, CEO of the St. Louis-based cable-TV provider Cobridge Communications, stops by Bross’s basement, heaping praise on Huawei’s innovation and low-cost products. Cobridge can buy digital videorecorder equipment from Huawei for about half what it would pay Motorola for similar gear and still get enough bells and whistles to compete with bigger cable companies. “As for the security thing, it’s something I frankly don’t understand,” Widham says. “All of the equipment from all of the companies comes from China.”

 

In April, Huawei celebrated its 10th year of U.S. operations by opening a new R&D facility in Silicon Valley. Jamie L. Matthews, the mayor of Santa Clara, Calif., performed the ribbon cutting at the facility. “You will find no city that will be more responsive to your needs,” Matthews declared to Bross and his colleagues and assorted dignitaries, as the smell of fresh paint wafted through the function room. “With Huawei being in Santa Clara,” Matthews continued, “we know that your future is as bright as the 300 days of sunshine you will get.”

Huawei has spent $500 million over the past five years here expanding its operations. Last year it bought $6.1 billion worth of goods from U.S. companies. It’s making the U.S. one of its main innovation hubs, producing state-of-the-art equipment that will rival anything made by Cisco or Hewlett-Packard (HPQ). After a presentation, Huawei executives handed a poster-size $100,000 check to America’s Promise Alliance, an organization founded by Colin Powell that focuses on improving children’s education.

Bross does a steady stream of events like the one in Santa Clara. He has a team of personal administrators who manage his schedule and trips between St. Louis, Washington, Shenzhen, and big customers. He plays the down-home tech savant who can give audiences the big picture and smooth out tough situations. Last year, for example, Texas Governor Rick Perry held a ceremony for Huawei’s expansion of a facility in Plano. Bross was there doing videos about Huawei’s ability to create jobs, and explaining away the niggling security issues.

In addition to the grip-and-grin events, Huawei is opening its operations to official scrutiny. Earlier this year, Deputy Chairman Ken Hu wrote a letter calling on the U.S. government to conduct a thorough investigation of the company. Huawei has offered itself up like this before—it built what it calls a “secure cell” in Britain. This facility gives the government and third parties a chance to examine the source code of Huawei products. No other equipment maker offers anything quite like this, and Huawei has vowed to build a similar facility in Virginia.

So far, these moves have done little to allay Washington’s concerns. In 2008, Huawei gave up on an attempt to acquire the networking company 3Com after Republican lawmakers played the national security card. The 2010 Sprint contract bid fell through for similar reasons. And in February, Huawei abandoned a $2 million acquisition of 3Leaf Systems, a Silicon Valley software startup. That episode stood out: 3Leaf had gone bankrupt and searched unsuccessfully for a buyer. Huawei appeared, offered jobs to the remaining staff—and then got into a public spat with the U.S. government, which said Huawei had tried to circumvent government approval procedures for this type of acquisition. Huawei gave up on the deal before it was to go under review by President Barack Obama.

Senator Kyl has been Huawei’s most vocal critic in Washington. Kyl’s office declined to make him available for an interview, but it did send along a package of documents that rehashed the usual objections to Huawei’s presence in America. None of the unclassified documents points to an actual act of espionage on Huawei’s part. A former high-ranking official in the Homeland Security Dept. adds that he never ran across any classified material linking Huawei to espionage. Still, the official, who requested anonymity because of the sensitive nature of the topic, notes that the constant hacking of U.S. corporations by Chinese-sponsored groups has left Washington wary of Huawei and its peers. The Chinese government has not given anyone a reason to have confidence in the company, this person says.

If anything, Huawei’s reputation in the U.S. appears to be worsening rather than improving. The former Homeland Security official and congressional staffers, who also requested anonymity because of diplomatic sensitivities, grumble about the company’s work with BT, saying it opens the potential for China to spy on intelligence shared between the U.S. and Britain. Huawei has become a hot-button issue leading up to the U.S. Presidential elections as well. Perry was called out by the Washington Post recently for meeting with Ren and trying to persuade the Huawei chief to set up shop in Texas, despite the long-standing national security concerns. A video from October 2010 shows Perry at the ceremony in Plano to celebrate Huawei’s new headquarters. “This is a company with a really strong worldwide reputation,” Perry said at the event, adding later that “the ripple effect of this company is going to be quite substantial.”

 

Part of Huawei’s strategy for recasting its image is to hire non-Chinese for positions of power. Last month the company hired John Suffolk, the former top information technology officer for the British government, as its new global head of cybersecurity. Suffolk will be based in Shenzhen and, like Bross, will report directly to CEO Ren.

In fact, Huawei has developed a remarkable knack for luring talent away from other companies. There are now 23,000 foreigners working for the company. Tian Feng, president of HR, says globalization of the Huawei workforce will only continue. “Although Huawei employees are in all the corners of the world, they are very happy and enjoy their life and work,” Tian says in an interview at Huawei’s headquarters complex in Shenzhen. He glances at some index cards in his hands and proclaims brightly: “We want to be open and deliver the right and positive information to the public. We are not mysterious anymore.”

One obstacle remains in Huawei’s quest for openness: founder Ren’s Garbo-like determination to stay out of the spotlight. He eschews thought-leader basics such as public speeches, TV appearances, and media interviews. “If you go to Huawei’s office in Shenzhen, everyone is speaking like their CEO is in another world,” says Dimitris Mavrakis, senior analyst with London-based research firm Informa Telecoms & Media. “It gives you an impression that their CEO is surrounded by a distortion field and no one can touch him.”

Huawei executives struggle when asked about Ren’s silence. Deputy Chairman Xu says Huawei’s founder would be happy to open up, if only his handlers would let him. “The team keeps on telling him since you haven’t met with the media for so many years, why start?” says Xu, a slightly built PhD from Nanjing University of Science and Technology. “Better not to open the door.”

Huawei has revealed some information about the boss, including details about his youth in a poor rural part of China and his days in the Chinese equivalent of the U.S. Army Corps of Engineers. “He’s a real person,” explains Richard Brennan, a 62-year-old American who works in the Shenzhen office coordinating Huawei engineers’ work on new types of telecom standards. “He does do appearances. He’s not unphotographed. He has a family.”

Bross says American mistrust of Huawei eventually will go away. “We had 89 percent growth here last year,” he says. “In the U.S., customers have been voting with their wallets.” He’s an optimist about U.S.-China relations in general. His eldest daughter has gone to China to complete her studies, and is thinking about becoming a consultant for Chinese entrepreneurs looking to work with foreign companies. Bross borrows from this anecdote, saying he joined Huawei not for the fat paycheck but rather for a chance to unite two cultures. “I am looking to create an environment where we can grow trust,” he says. “That is a challenge that you can get up for.” But if all that goodwill stuff fails, Huawei will resort to persistence. “The fact of the matter is that Huawei is here to stay.”

It’s morning, and Bross is talking over coffee in his huge kitchen, where plaques bearing the Ten Commandments adorn the walls. His two elementary school-age kids—he has five children in all—have just come in for breakfast after shoeing their horses Mac, Jack, and Billy Bob. They’ll soon get ready to head out for entrepreneur day camp, where they role-play as banker, shopkeeper, and mayor of a make-believe city and learn how to levy taxes and create products. The oldest son is prepping for his internship at a financial-services firm, while the eldest daughter enjoys her last stretch of stateside vacation before heading back to China. “There’s hope for this country yet,” Bross says.

Vance_190
Vance is a technology writer for Bloomberg Businessweek in Palo Alto, Calif. He is the author of Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future (HarperCollins, May 2015). Follow him on Twitter @valleyhack.
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Einhorn is Asia regional editor in Bloomberg Businessweek’s Hong Kong bureau. Follow him on Twitter @BruceEinhorn.

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