Trump's blacklist of Huawei has serious implications for Red Hat, Oracle, VMware and other huge US software companies (MSFT, ORCL, VMW, RHT)

Huawei ox horn campus dongguan china

US companies caught up in the quagmire of Trump's blacklist on Huawei extends far beyond Google, Intel, Broadcom, and Qualcomm.
Many enterprise software companies sell their wares to the Chinese giant, and have joint tech development or sales agreements.
Those companies could be required to get US government approval to continue their business relationship with Huawei, and those licenses won't be easy to obtain, Yale professor and global competition expert Paul Bracken tells Business Insider.
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"We are honored to expand our strategic relationship with Huawei, enabling leading global telecommunication companies with the power of open source to innovate and compete," Red Hat's telecom marketing director Margaret Dawson said in a press release back in 2017.

But, like much of the tech industry, Red Hat may not be feeling so cheery about the "strategic relationship" with the embattled Chinese telecommunications giant these days.

Yale professor Paul Bracken Last week, the Trump administration added Huawei to a trade blacklist.

Most of the attention has been on American components suppliers like Intel, Qualcomm, Broadcom and Google who have reportedly cut off critical parts to Huawei thanks to that ban.

But there's another whole part of the tech industry grappling with what to do: enterprise software.

Companies like VMware, Red Hat, Microsoft, IBM, Oracle and even, to a minor extent, Amazon Web Services — which otherwise competes with Huawei's own cloud computing services — have business dealings with Huawei, of one sort or another.

In some cases, Huawei buys their software for its own infrastructure needs; in others those companies bundle their software with Huawei's hardware to sell to their joint customers, or otherwise have agreements to market jointly-developed products together. Some cloud providers allow Huawei to sell its software on their platforms.

Oracle and Microsoft declined to comment on their policies regarding Huawei. The other companies have yet to return Business Insider's request for comment.

A big hurdle

It's not clear that all of the relationships will be immediately cut off. But the blacklist prevents American companies from the "sale or transfer" of their technology to Huawei without a government license to do so, the Department of Commerce warns.

And such licenses will almost certainly be hard to get, Yale professor Paul Bracken tells Business Insider. Bracken is a prominent expert on global competition, national security, and technology strategy.

"It'll be hard and slow to get a license from DoC because they are not remotely equipped to handle the volume and complexity of the requests. Imagine them farming out a request to DoD or CFIUS for their opinion, it'll just bring in another under equipped agency to the process," Bracken said.

The Committee on Foreign Investment in the United States (CFIUS) is a rather mysterious committee that reviews deals with foreign entities. Under Trump it has already severely clamped down on deals involving China's investment in the US.

"International business for the past 20 years has been built on agile cross-border value chains. Now, a big break in the circuit has been installed," as Bracken describes Trump's cold war on Chinese tech.

"Companies will be extraordinarily averse to discussing this issue for fear of pissing off the Chinese authorities. Bringing attention to your American character is going to put you in the cross hairs of officials in China who are looking for a target to bag," Bracken said.

Getting 'ugly'

But the escalation of tensions between the US and China is ugly for multinational software companies for other reasons. These companies "are about to get squeezed in China more than they already have. From China's viewpoint they have few restraints on even larger IP theft because US firms are shutting down in China. This may be their last chance to get some IP before they go out the door," Bracken said.

He offers up, by way of example, Oracle's actions earlier this month, when it shut down its R&D center in China, laying off about 1000 people.

"Trying to sell US products in China is getting a lot more difficult. Even some US consumer products companies I know are worried, although I don't think they actually have much to fear," Bracken says.

He says another impact of escalating tensions is that "Beijing fears US cyber penetration of their infrastructure as a counter to what China has done in the US and Europe," he said.

The United States government and domestic tech firms have long suspected and accused China of employing state-sponsored hackers to steal American and European intellectual property.

For instance, in December, the FBI and Justice Departments charged two men with hacking, and alleged their association with a bigger group known as Advanced Persistent Threat 10, or APT 10, a hacking group associated with the Chinese government, the FBI said. Former Cisco CEO John Chambers has been sounding the alarm against Huawei, specifically, since 2012.

US executives working in China might have cause to be afraid

But the most terrifying prospect of all is fear for the safety of US executives of tech companies working in China, after the arrest of Huawei's CFO, Meng Wanzhou, who is the daughter of Huawei Technologies' billionaire founder Ren Zhengfei.

She's still under house arrest in a six-bedroom, multi-million dollar home, fighting extradition from Canada to the US. If US tech execs are arrested in China as some sort of retribution, they might well be afraid that they wouldn't be treated so well.

"Even the threat of criminal prosecution scares US [multinational corporations] to death. The thought of sitting in a jail cell in China is terrifying," Bracken said, pointing out that in many other countries, law enforcement don't treat those accused of civil offenses differently than those accused of criminal ones.

"Accountants have been thrown in jail for violating audit rules in India. So even if arrests are few and far between, the impact of it will be quite large," he warns.

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