It's official: NSA spying is hurting the US tech economy

China is backing away from US tech brands for state purchases as NSA revelations continue to make headlines in newspapers all around the world.
Written by Zack Whittaker, Contributor
(Image: via CBS News)

China is no longer using high-profile US technology brands for state purchases, amid ongoing revelations about mass surveillance and hacking by the US government.

A new report confirmed key brands, including Cisco, Apple, Intel, and McAfee -- among others -- have been dropped from the Chinese government's list of authorized brands, a Reuters report said Wednesday.

The number of approved foreign technology brands fell by a third, based on an analysis of the procurement list. Less than half of those companies with security products remain on the list.

Although a number of reasons were cited, domestic companies were said to offer "more product guarantees" than overseas rivals in the wake of the Edward Snowden leaks. Some reports have attempted to pin a multi-billion dollar figure on the impact of the leaks.

In reality, the figure could be incalculable.

The report confirms what many US technology companies have been saying for the past year: the activities by the NSA are harming their businesses in crucial growth markets, including China.

The Chinese government's procurement list changes coincided with a series of high profile leaks that showed the US government have been on an international mass surveillance spree, as well as hacking expeditions into technology companies, governments, and the personal cellphones of world leaders.

Concerned about backdoors implanted by the NSA, those revelations sparked a change in Chinese policy by forcing Western technology companies to hand over their source code for inspection. That led to an outcry in the capital by politicians who in the not-so-distant past accused Chinese companies of doing exactly the same thing.

The fear is that as the China-US cybersecurity standoff continues, it's come too late for Silicon Valley companies, which are already suffering financially thanks to the NSA's activities.

Microsoft said in January at its fiscal fourth-quarter earnings that China "fell short" of its expectations, which chief executive Satya Nadella described as a "set of geopolitical issues" that the company was working through. He did not elaborate.

Most recently, HP said on Tuesday at its fiscal first-quarter earnings call that it had "execution issues" in China thanks to the "tough market" with increasing competition from the local vendors approved by the Chinese government.

But one company stands out: Cisco probably suffered the worst of all.

Earlier this month at its fiscal second-quarter earnings, the networking giant said it took a 19 percent revenue ding in China, amid claims the NSA was installing backdoors and implants on its routers in transit.

China remains a vital core geography for most US technology giants with a global reach. But until some middle-ground can be reached between the two governments, expect Silicon Valley's struggles in the country to only get worse.

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