It seems only yesterday American leaders were wary of Chinese computing equipment. The congressional Intelligence Committee said Chinese telecoms and networking-equipment vendors “can’t be trusted,” and American network operators with government contracts were steered away from vendors like Huawei and ZTE. Yep, that was last year.
The shoe is on the other foot today.
China’s Ministry of Public Security is diving into American computing giants over security concerns. Database software specialist Oracle Corporation (NASDAQ:ORCL) is on the list, presumably due to its big bet on server and storage hardware. So is storage systems expert EMC Corporation (NYSE:EMC). Even jack-of-all-trades International Business Machines Corp. (NYSE:IBM) is under investigation.
“At present, thanks to their technological superiority, many of our core information technology systems are basically dominated by foreign hardware and software firms, but the Prism scandal implies security problems,” said Chinese media services, according to Reuters.
This is in reaction to the data security scandal that NSA contractor Edward Snowden uncovered at great personal risk and cost. It’s not the first sign of Chinese eyebrows being raised; it’s just the most formal backlash so far. In June, Cisco Systems, Inc. (NASDAQ:CSCO) presumably lost a major contract with massive telecom China Unicom over similar concerns.
With at least one Dow Jones Industrial Average member in the Ministry’s sights right now and another losing business over the Prism surveillance system controversy, Snowden’s disclosures are having a real effect on American business interests.
But just how important is the Chinese market to our networking, big-storage, and computing vendors? Well, some supposed targets care more than others.
EMC Corporation (NYSE:EMC) sees China as a rapid growth opportunity, but the market isn’t a major factor in current results. Losing Chinese sales might slow down the company’s expansion plans but won’t hurt short-term results all that much.
China is a bigger deal to International Business Machines Corp. (NYSE:IBM). The Asia-Pacific region accounts for 24% of Big Blue’s total revenue, and China delivers the lion’s share of that. The company also has a hundred-year legacy to defend, and I find it unlikely that IBM would risk its global reputation by building government backdoors into its equipment. Maybe I’m naive here, but it just doesn’t compute, so I’d expect Chinese investigations to come up empty-handed here.
Credit: International Business Machines Corp. (NYSE:IBM)
I have somewhat less confidence that Oracle Corporation (NASDAQ:ORCL) has sparkling-clean hands, but then, Asia overall only adds up to 16% of the company’s sales. So any lost business here won’t be very painful. The same theory holds for Cisco Systems, Inc. (NASDAQ:CSCO) as well: Asia accounts for 15% of the company’s revenue.
So Snowden and his Prism disclosures might put a slight damper on American computer-sector business in China until the whole affair blows over. But it won’t be a game-changing backlash for any of these companies. The Dow will survive this storm in a teacup. In the end, I’m still convinced that Snowden did America a service by unveiling shady policy moves, and he’s not a business-breaking pariah. Share your own opinion on these matters in the comments box below.
The article Did Edward Snowden’s NSA Papers Really Hurt American Business Interests? originally appeared on Fool.com and is written by Anders Bylund.
Fool contributor Anders Bylund holds no position in any company mentioned. Check out Anders’ bio and holdings or follow him on Twitter and Google+. The Motley Fool owns shares of Oracle Corporation (NASDAQ:ORCL). Motley Fool newsletter services have recommended creating a synthetic long position in International Business Machines Corp. (NYSE:IBM).
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