CHICAGO China's Huawei HWT.UL said it would back away from its acquisition of U.S. server technology company 3Leaf's assets, bowing to pressure from a U.S. government panel that had suggested it should divest the assets.
The U.S. government has been concerned about Huawei, China's largest telecommunications equipment maker, for years because of uncertainty over its relationship with the Chinese government.
Huawei was founded by a People's Liberation Army soldier, and opponents say it retains links with China's security services. Huawei has denied the links.
Huawei bought certain 3Leaf assets for $2 million last May but did not file with the Committee on Foreign Investment in the United States (CFIUS), which reviews deal for possible national security implications, until November.
According to Huawei, CFIUS suggested that the Chinese company voluntarily divest the assets.
As recently as February 14, Huawei said it would wait for a decision from the White House rather than divest.
Now it has changed its course.
"This was a difficult decision, however we have decided to accept the recommendation of CFIUS to withdraw our application to acquire specific assets of 3Leaf," Huawei said in a statement issued late on Friday night in the United States.
"Huawei will remain committed to long-term investment in the United States. The significant impact and attention that this transaction has caused were not what we intended. Rather, our intention was to go through all the procedures to reveal the truth about Huawei."
Huawei is the world's No. 3 mobile gear maker behind Ericsson (ERICb.ST) and Nokia Siemens Networks, which is a joint venture of Nokia NOK1V.HE and Siemens (SIEGn.DE).
Alleged links with China's security services, which Huawei has denied, have torpedoed its U.S. deals in the past.
The company gave up a bid for 3Com in 2008 due to security concerns. In 2010, a group of Republican lawmakers raised national security concerns about Huawei's bid to supply mobile telecommunications equipment to Sprint Nextel Corp (S.N).
CFIUS is an inter-agency U.S. government panel that reviews deals with national security implications. Its members are drawn from the Defense, State, Homeland Security, Justice, Commerce and other departments.
(Reporting by Sinead Carew in New York and Jessica Wohl in Chicago)