Huawei is retreating from the undersea telecom cable business. The Chinese company, which is increasingly challenged by a U.S. government-led campaign to ban the use of its equipment, has inked a deal to sell its majority stake in Huawei Marine Systems for an undisclosed sum, according to Reuters.
The buyer, Hengtong Optic-Electric, is an optical telecom network company also based in China. It filed a letter of intent to acquire Huawei’s 51% stake in the business with the Shanghai Stock Exchange.
The deal marks the first major asset sale for the company as it mounts a legal challenge against the U.S. government and battles accusations of being a participant in espionage under direction of the Chinese government.
Undersea cables are critical infrastructure necessary to transmit global internet traffic. As such, Huawei’s growing interest in the market prompted U.S. security officials to label it a suspected security risk along with Huawei’s much larger telecom equipment business.
It’s unclear what caused Huawei to seek an exit from the undersea business, but multiple factors are certainly at play. “I am not surprised Huawei is divesting its submarine networks business,” Chris Antlitz, principal analyst at Technology Business Research, wrote in response to questions.
“This has less to do with the political situation and more to do with the fact that, by its nature, the submarine cable business is highly cyclical, very low margin and prone to bouts of severe unprofitability,” Antlitz explained.
“Huawei’s decision to exit that space is more of a strategic play to improve its business finances rather than a direct response to the political situation they find themselves in,” he wrote. “The submarine business is not critical for Huawei’s future. It is OK if they are not directly in that space.”
Huawei Marine Networks, which is a joint venture between Huawei and Global Marine Systems, has deployed more than 31,000 miles of undersea cables spread across 90 projects worldwide, according to its site. Huawei did not respond to a request for comment by press time.
IEEE Reverses Course
Meanwhile, Huawei got some respite from a growing number of open source groups that have scrambled to limit their exposure to potential legal issues due to Huawei’s participation in standards-defining bodies and open source communities. IEEE reversed course just four days after it said it new U.S. government regulations forced it to restrict Huawei and its employees from participating in some aspects of peer review and editorial activities.
“Our initial, more restrictive approach was motivated solely by our desire to protect our volunteers and our members from legal risk,” IEEE wrote in a new statement. The organization clarified that Huawei, like all IEEE members, can continue to participate in all IEEE activities.