A report from Financial Times yesterday took everyone by surprise when it reported that Richard Yu, chairman of Huawei Technology Co Ltd (SHE:002502)’s consumer group said that their company is willing to acquire Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V), and it entirely depends upon the readiness of Nokia.
Acquiring Nokia will face hurdles
There can be hurdles if Huawei eyes Nokia, says a report by Nigam Arora from Forbes. The transaction will be opposed by the U.S. government as well as European Union. Both U.S. and EU will not allow acquisition of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) by Huawei Technology Co Ltd (SHE:002502). The reason being Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) has a joint venture with Siemens which is Nokia Siemens Network (NSN). Nokia Siemens network is a large networking systems vendor, which gives a close competition to Huawei. There will be antitrust issues along with serious security issues.
Acquiring Blackberry / Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) will be even more difficult as BlackBerry, until recently, had a monopoly on phones for the Department of Defense (DOD).
A recent example
The vital information and communications are basically leaked through the software in the networking system. Recently, Committee on Foreign Investments in the United States (CFIUS) approved the acquisition of Sprint Nextel Corporation (NYSE:S) from Softbank Corp (TYO:9984) (OTCMKTS:SFTBF) only after demanding and receiving concessions like elimination of some Chinese equipment, authorization of a security director, and veto power over Sprint’s future equipment purchases. CFIUS authorized a security director, who will be an Independent member in the board of Sprint. The Security director will look after that if Sprint is following all the national security matters.
U.S. Regulators are already cautious
The U.S. House of representative Permanent Select Committee on Intelligence presented a report last year which was named Investigative report on the U.S. National Security Issues Posed by Chinese Telecommunications Companies Huawei Technology Co Ltd (SHE:002502) and ZTE Corporation (SHE:000063). There were many recommendations made in the report, a few of them are the United States Intelligence community should monitor the risk and the acquisition which involves Huawei and ZTE should be blocked by CFIUS if they pose a risk to the US national security.
Majority of Americans are unaware of Huawei Technology Co Ltd (SHE:002502), but it is a big Chinese company. The company mainly does business in networking and telecommunication equipment. Huawei took the number one spot in equipment manufacturer globally, leaving behind Ericsson (ADR) (NASDAQ:ERIC). There are at present 140,000 people employed in the company, and it operates in 140 countries.
The company has recently forayed into the Smartphone business and has made a major mark. As per the report from research firm IDC, in the fourth quarter of 2012, the company ranked third in the smartphone sales just behind Apple Inc. (NASDAQ:AAPL) and Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930).