Huawei backs off from controversial acquisition of 3Leaf Systems

Huawei Technologies, the Chinese telecom network gear maker has backed off from its controversial May 2010 acquisition of US-based start-up server firm 3Leaf Systems over fears that the US government would torpedo the deal on national security interest.

Over the weekend, Huawei decided to capitulate to US demands despite posturing for two weeks that it would seek US President Barack Obama's ruling on the deal.

Shenzhen-based Huawei, which is already under intense scrutiny in many countries including India for its links to the Chinese People's Liberation Army, had been asked by the US Committee on Foreign Investment (Cfius) in November 2010 to secure retroactive clearance for its hush-hush acquisition of 3Leaf (See: US government questions Huwaei on "sneak" 3Leaf Systems acquisition).

Cfius, which is chaired by the Treasury Secretary Timothy Geithner and has representatives from the Defence and Homeland Security departments, is empowered to review acquisitions that could have national security implication.

Cfius does not formally block a deal, but informs American companies to voluntarily drop a transaction if it finds that the deal is not in the interest of national security. However it has blocked three Chinese deals earlier.

In May 2010, Huawei acquired the staff and intellectual property of Santa Clara, California-based 3Leaf Systems, a start-up company that provides server virtualisation solutions to support scale-up and scale-out virtual servers in enterprise data centres.

Founded in 2004 as 3Leaf Networks, the company's V-8000 delivers server virtualisation by virtualising the networking and storage I/O for large pools of computer nodes that makes several computers work together like a more powerful machine.