The Justice Department has formally charged Huawei with a list of crimes that include stealing trade secrets from T-Mobile (NASDAQ:TMUS) as well as bank and wire fraud. For the Chinese phone giant, this is bad enough. The most potent allegation, though, remains that its telecom equipment and mobile phones were built with security holes to allow access by Chinese government spies.
In this segment of the MarketFoolery podcast, host Chris Hill and Motley Fool director of small-cap research Bill Mann reflect on what the escalation of this dispute means for the company, as well as how it affects its large Western telecom clientele.
A full transcript follows the video.
This video was recorded on Jan. 29, 2019.
Chris Hill: Huawei, which is the phone giant in China, is back in the headlines. The U.S. Justice Department has charged Huawei with a number of crimes, including trying to steal trade secrets from T-Mobile. The company and its CFO have also been charged with a little thing we like to call bank and wire fraud.
Bill Mann: Which is a little bit of a catch-all for "We know you've done something bad with your finances and we're going to sort out what it is." I expected some form of charges to come.
Hill: We've seen charges from other countries.
Mann: That's right. As we talked about before we came on the air, the Justice Department is not messing around with the charges against Huawei. Of course, the company disputes all the charges. It disputes the overarching charge against Huawei, which is that its telecom equipment is also used for spying for the benefit of the government of China. I think it's crazy to be on that side of that argument. But, yeah, this is a company that's now in the crosshairs of a lot of Western countries, and I don't see how they get out of it.
Hill: Where is T-Mobile in all of this? To go back to Verizon, you look at the past year or so, Verizon, T-Mobile, these are stocks that haven't really done all that well. They've done better over the past 12 months than AT&T. But if you're T-Mobile... [laughs] John Legere, one of our favorite CEOs because he's one of the most colorful CEOs and certainly for enjoyable conference calls, this isn't the kind of headline he's looking to be a part of.
Mann: No! Yeah, he doesn't want to be part of a headline where, "By the way, some data, maybe it was ours and maybe it was yours, has been taken from us by the Chinese government." Allegedly. Nonetheless, it's not good for the U.S. carriers. T-Mobile, of course, is German, so let me back that up a little bit. It's not good for the carriers involved.
In some ways it's really interesting. I hadn't really thought about it until you asked that question. It's a little Big Brother-y of the government to come in where -- T-Mobile hasn't sued, and the government is coming down on Huawei on their behalf.
Bill Mann has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.