Cisco's NSA problem is going to whack all of US tech's growth plans

Cisco's NSA problem is going to whack all of US tech's growth plans

Summary: Will emerging markets really buy routers, servers and storage systems from US enterprise tech giants now that it's obvious the NSA intercepts them en route to install spying gear?


Cisco's emerging markets business---the engine for the networking giant's future growth---continues to take a hit and that situation isn't likely to change now that it's common knowledge that the NSA has been intercepting routers---and other IT gear---in the supply chain so it can install call-home beacons.

These "upgrade" stations, which have generated a good bit of chatter, were revealed in Glenn Greenwald's book No Place to Hide. You can find the docs supporting Greenwald's book on his site even though links to the actual source information are hard to come by in the tech press.

According to the leaked docs, the NSA was really pleased with itself because it could intercept packages.



Cisco's general counsel Mark Chandler reiterated the U.S. government has overreached and shouldn't interfere with deliveries.

Chandler wrote:

We comply with US laws, like those of many other countries, which limit exports to certain customers and destinations; we ought to be able to count on the government to then not interfere with the lawful delivery of our products in the form in which we have manufactured them. To do otherwise, and to violate legitimate privacy rights of individuals and institutions around the world, undermines confidence in our industry.

...undermines confidence in our industry

Chandler puts the confidence hit mildly. He should have said that the NSA supply chain intercepts kill business abroad, growth and jobs and will have a large economic impact well beyond Cisco. Simply put, the NSA has almost guaranteed that Huawei will own China as well as developing markets for years to come. Perhaps that reality doesn't matter now, but it will in another decade.

The other key point here is that the NSA was chest thumping because it intercepted "servers, routers, etc." Don't you think Dell, HP and IBM should worry about NSA installing beacons on their gear? How about Oracle, Western Digital or any other U.S. based player that manufactures anything here? Given the NSA practices, it would be a better idea to manufacture hardware outside the U.S. when shipping to some state that the U.S. government doesn't like at the time.

To recap, the NSA's supply chain intercepts will:

  1. Cost U.S. tech giants sales in key markets;
  2. Incentivize more manufacturing to go closer to countries outside the U.S.;
  3. Ultimately cost jobs;
  4. Kill trust in U.S. IT giants as well as the supply chain;
  5. And cost the U.S. its technology leadership.

How do we quantify these hits? Right now we don't, but it's hard to ignore that technology giants are sounding like broken records when it comes to emerging market growth. Following a solid earnings report and outlook, Cisco CEO John Chambers said:

There are three areas of our business which we have discussed for the last several quarters where we are managing through challenges, both macro
and Cisco specific. First, emerging markets from a macroeconomic perspective, continue to be challenging. Orders in our emerging markets declined 7% with the BRICs plus Mexico down 13%. As we've said for several quarters, we expect these challenges to continue.

The challenges we saw in Brazil, down 27% and Russia down 28% are consistent with those we are hearing and seeing from our peers and customers, while China declined 8%, Mexico declined 3% and India declined 1%. Our strategy with emerging markets has not changed. Our relationship begins with the engagement with the leadership of the countries on key priorities for the country and technology development initiatives and drives all the way to local municipalities, their service providers and private businesses.

Can Cisco---or any other U.S. enterprise technology bellwether---really have engagement with leaders of other countries knowing the NSA is intercepting shipments? Short answer: Hell no.

Topics: Data Centers, Cisco, Government, Hardware, Networking, Servers

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  • The docs are interesting...

    ...but they don't answer the question of how the NSA goes about tampering with communications hardware. All I can infer is the possibility that US hardware manufacturers are voluntarily doing it on the NSA's behalf (which should prompt the reversal of some aspects of current law I thought questionable to begin with).
    John L. Ries
    • I doubt that the companies who made the devices

      Are doing this since it says that the things are interdicted while shipping to the people who bought them.
      I'm honestly getting tired of this bullplop in the extreme. The government should NOT have the right to mess with hardware/software that I buy or is offered to me for free.
      • They don't have the right

        It's not stated in the Constitution that they are allowed to take this kind of action; which means that right is reserved to the States, or citizens.
        Plus, the 4th amendment to the Constitution clearly states that unreasonable searches and seizures will not be committed by the government, without a warrant with probable cause. Such situations clearly do not exist for router purchasers, and in any event, the NSA never obtained warrants for them, justified, reasonable, or otherwise.
        • It could be claimed as...

          "necessary and proper" to providing for the common defense (an enumerated power). I'm not convinced that the tampering was either necessary or proper, but if push came to shove, the courts probably would find it constitutional.

          It was still a stupid thing to do.
          John L. Ries
          • Spying on other nations

            Is part of the national defense. Spying on Americans is not. Within these borders, the government should have no higher calling than to guarantee that our rights are NOT infringed. The Fourth Amendment is a personal right, and in the eyes of the Founders, personal rights trump those of the State. As it should be.
            Iman Oldgeek
          • Agreed

            But it appears that the tampered-with devices were bound out of the country.
            John L. Ries
          • 4th Amendment?!

            That means less and less every day.
  • Move Manufacturing

    Cisco and other manufacturers will move manufacturing to overseas locations to avoid NSA antics. It may not cost Cisco, but it could be devastating to US employment.
    • The bad part of it is... looks like the cooperation was voluntary; that nobody had to twist Cisco's or MS' or anyone else's collective arm,. More likely these companies were paid with data on their foreign competitors (I do recall seeing the word "economic" a number of times in the docs), and perhaps (in the case of companies like MS) lenient treatment from the Justice Department. I'm speculating at this point, but I'm wondering if the Snowden disclosures had something to do with Steve Ballmer's early retirement and whether US diplomatic efforts to internationalize patents weren't payback for industry cooperation with the spooks.

      All of this is, of course, sheer speculation, but it seems more reasonable than the intimidation theories I've seen thrown around. And I think at this point, we can safely say that CISPA is dead for at least another two years. And if the hypothesis holds, I don't think immunity from lawsuits for US companies that cooperate with US intelligence gathering efforts will endure much longer.
      John L. Ries
      • All of which is to say...

        ...that it wouldn't do Cisco any good at all to offshore its manufacturing, or even to incorporate overseas. There's nothing at all to stop the spooks from making exactly the same sorts of arrangements with foreign companies.
        John L. Ries
      • And... will cost Cisco and every other corporation mentioned in the docs.
        John L. Ries
      • Looks like I hit a nerve

        Is it easier to think of these companies as the innocent victims of Big Bad Government than as willing partners?

        On second read, it looks like Cisco is denying involvement, so the question remains, how is it done? Cozy arrangements with shippers, perhaps?
        John L. Ries
        • Cisco does not have to have had knowledge of this

          This stuff could be interdicted without their knowledge and the people in question could just be informed that it is 'shipping delays' that kept their stuff from getting to them on time.
          • That would also point to shipping companies

            And I doubt they were bullied into compliance either.
            John L. Ries
          • And there are other hardware companies

            Cisco is just the largest one.
            John L. Ries
          • Tracking documentation

            Cisco tends to deliver stuff with tracking information. Spending 4 or 5 days at a depot beside an airport seems rather suspicious...
        • How did he do that?

          Why wouldn't they just waste our money and buy lots of each product they want to hack.
          Who would know what they are using it for?
          They could pre-hack the equipment. Then it takes no more time than a service call to replace a card. 1 hour? No delay in shipment!
        • indeed, that's the big question

          Precisely. WHO in the shipping industry is helping NSA identify and INTERDICT computer tech ?

          It's a thousand times worse than this stupid article is telling you.

      • Voluntary

        Yes, they voluntarily followed court orders under pain of imprisonment.
        • The law doesn't provide for that

          Which leaves as the only two possibilities extralegal intimidation and voluntary cooperation.
          John L. Ries