Cisco CEO to Obama: NSA is Killing Us

When any government, anywhere, screams, “They’re spying on us,” it’s a good bet that the spying is mutual. If not, it is only because one side lacks the capacity.

Today, Attorney General Eric Holder announced criminal charges against five members of the Chinese Army. Their alleged crime: hacking into U.S. corporate networks to steal trade secrets.

Edward Snowden’s NSA revelations indicate the U.S. government engages in similar hacks, against both foreign governments and private companies. The non-American targets weren’t happy about it.

The irony and hypocrisy are rich, but the technology industry has a much bigger problem. Cisco Systems (CSCO) CEO John Chambers is nervous enough to practically beg Obama for help.

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Why is Cisco in trouble? Glenn Greenwald, the journalist Edward Snowden chose to spill the NSA beans, is out with a new book called No Place to Hide. In the book, he shares some photos from a classified, internal NSA newsletter.

The writer congratulates fellow agency staffers on their ability to intercept new networking gear as it was shipped to customers, implant tracking devices inside, and then seal the packages back and send them on their way. This jargon-filled quote describes the practice.

“Here’s how it works: shipments of computer network devices (servers, routers, etc,) being delivered to our targets throughout the world are intercepted.

“Next, they are redirected to a secret location where Tailored Access Operations/Access Operations (AO-S326) employees, with the support of the Remote Operations Center (S321), enable the installation of beacon implants directly into our targets’ electronic devices.

“These devices are then re-packaged and placed back into transit to the original destination. All of this happens with the support of Intelligence Community partners and the technical wizards in TAO.”

Along with the above text was this fuzzy photo of NSA workers resealing a package.

NSA workers wrapping interdicted Cisco package. Source: Edward Snowden

Notice the Cisco logo I circled in yellow. The NSA modified the products inside, apparently without asking Cisco’s permission and certainly without the buyer’s permission.

How do you think Cisco customers outside the U.S. reacted to this picture? To say they are angry is an understatement. They’re furious … and I don’t blame them.

Last week’s CSCO quarterly report showed sales plummeting in fast-growing emerging markets like Brazil and China. Cisco can’t afford to lose business in those places — but it’s hard to see how they retain it after this latest news.

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As you may have seen on their TV commercials, Cisco wants to build the Internet of Everything. That task is now quite a bit harder, given that we now know that any Cisco products you buy could have unwanted passengers inside.

Cisco CEO John Chambers sent a letter to President Obama last week complaining about the interdictions. I suggest you read the full text, but here is the most interesting part.

“We simply cannot operate this way. Our customers trust us to be able to deliver to their doorsteps products that meet the highest standards of integrity and security…

“We understand the real and significant threats that exist in this world, but we must also respect the industry’s relationship of trust with our customers …

“Absent a new approach where industry plays a role but in which you, Mr. President, can lead, we are concerned that our country’s global technological leadership will be impaired.

“Moreover, the result could be a fragmented Internet, where the promise of the next Internet is never fully realized.”

This is the leader of one of the world’s top technology companies. He may be a hypocrite, too, but I think we still have to take his warning at face value. U.S. tech companies are already losing overseas business, and it will likely get worse.

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Cisco is particularly vulnerable because it makes infrastructure hardware used by large businesses and governments. Others in this space include Juniper Networks (JNPR) and International Business Machines (IBM). Consumer-facing tech companies like Apple (AAPL) are in a little less danger — for now.

The biggest problem I see is that Cisco and its peers have no way out. They can’t fix the damage, even if Obama swears off this kind of interdiction. Foreign technology buyers will presume the NSA found some other way to infiltrate their systems.

I think the “fragmented Internet” Chambers foresees is a real possibility. It will be a world in which U.S. customers buy only U.S. technology, Chinese companies buy only Chinese technology, Brazilian companies buy only Brazilian technology, etc.

I’ve mentioned this trend a couple of times recently, in Internet Goes Intra and Putin Seizes Russia’s Facebook. The evidence gets stronger almost every day … and I haven’t even mentioned the European court decision ordering Google to censor its search results.

The Internet as we know it is changing radically. Will we still have investment opportunities in the tech sector? Of course we will. I’m sure we will all adapt — but it didn’t have to be this way. This path will mean losing a lot of potential innovation and it’s not clear that NSA is making the nation any more secure.

What’s your opinion? Is Chambers right about the threat to U.S. technology companies like Cisco? Will the Internet break up into smaller pieces? Are these NSA activities doing anything to make the U.S. safer? Click here to send me your thoughts by e-mail.

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I said last Friday (see Does Net Neutrality Spell Opportunity?) that the recent FCC action could open the door to some big telecom/media deals. We didn’t have to wait long.

Sunday afternoon, AT&T (T) announced it would acquire satellite TV provider DirecTV (DTV) in a $48.5 billion takeover. This follows the February deal that will combine Comcast (CMCSA) and Time Warner (TWC), if regulators approve. Rumors are flying about other mergers and acquisitions.

I have to congratulate Tony Sagami for being right on top of this trend in his new Disruptors & Dominators service. He’s found a tiny Silicon Valley start-up with a breakthrough technology that could make the mobile Internet 1,000 times faster than it is now.

Better yet, this little-known outfit is teaming up with a major company that could easily double in price if it acquires the new technology. It could happen soon, too, if the takeover trend continues.

To learn more, you can either watch Tony’s new video or read his special report. Both are free, and I hope you’ll try Disruptors & Dominators. We’re offering a one-year money-back guarantee.

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Techno-takeover fever helped the Nasdaq beat other benchmarks today. Here are the lead stories…

  • Internet and social media companies were some of the day’s best performers. Pandora (P ) rose 5.3%, Netflix (NFLX) gained 4.2%, and TripAdvisor (TRIP) picked up 5.2%.
  • All three of those companies could potentially be in play as the big ISPs try to lock in content deals. Verizon (VZ) hasn’t bought anyone yet, for instance.
  • The NSA interdictions aren’t hurting Cisco shares yet. In fact, CSCO is holding almost all of the gain it registered after last week’s earnings report. Today the stock closed at $24.35, down 0.1%.
  • Apple (AAPL) hit a new 52-week high of $607.33 in today’s session, and then closed at $604.59, up 1.2% for the day.
  • Russian president Vladimir Putin travels to Shanghai this week for a summit meeting with China’s Xi Jinping and other Asian leaders. We’ll see if they sign the rumored Russia-China energy deal.

Your thoughts on “Cisco CEO to Obama: NSA is Killing Us”

  1. What’s really funny is that the NSA is sooo stupid that it has a “internal newsletter” that babbles the news replete with pictures!! What a bunch of Bozos.

    I’m sure the British did the same thing when they got ahold of the first Enigma machine. “Hey guys!! Check this picture out!! It’s called an Enigma, and we’re gonna send it to Bletchly Park so’s we can read Gremany’s codes!! But please don’t tell anybody, it’s supposed to be a big secret!!”

  2. I remember Scott McNeely’s quote(he was CEO of SunMicrosystems, a forerunner of Cisco), who said “forget about privacy”–back in the late 80’s…well, privacy is one thing, spying is another. This does not spell out leadership, it smacks of paranoia on the part of the US government. The militarist approach to solving the problems of the world will lead to one conclusion…mutual destruction. Government needs to find a different way to spy on the world. Aren’t satellites, agents in countries and the CIA enough?? Like Rome, we will bleed our empire to death war by war, debt debacle by debacle.

  3. Before 9/11 I just had contempt for Washington and the welfare state. Since 9/11 I believe our only salvation is to let the system crash and rebuild from the ashes. The system cannot be fixed, and when the Gov. stops sending the checks out, their only option will be to start taking from the haves, just as they have been doing, only now they will have to work for it. I do believe the idiot politicians can now see what they have done and don’t have the guts to reverse the hand outs. We are toast. J. Clark

  4. Can not something be done legally to prosecute those carriers for tampering, be it the U.S. Post Office, FedEx, UPS or any other carrier? Should they not compensate Cisco or any other company’s tarnished reputation as well as compensate them for any future profit loss and be held financially accountable?

    Since you can’t sue the government for stupidly trashing their reputation or dragging down the good-guy image of the United States, one can surely sue those who comply in such misdirection.

    Our government needs to be encouraged into more transparency and virtuous dealings. They need to see the goodness and the positive opportunity in a problem for a solution.

    In every crisis there is a reason for it and it is their challenge to understand it and bring about a positive outcome. In everything, goodness is there. Be it a person or the government, if there is a problem, our responsibility is to provide a wise and loving solution. In doing so, lives become richer and more enthusiastic.

    A portion of those funds could be made available to whistleblowers whose jobs and lives may be in jeopardy for their brave action.

  5. The biggest terrorist threat to the people of the USA is their own government. Sadly most people in your country do not understand that. Within 50 years the USA will degenerate to a third world country status unless you get a grip of your political system.

  6. Chark\les D These corperations have been in bed with the dark side of our government, and for that matter, any government, for ever, if they got special treatment and some degree of monopily for it ! Why didn’t these big boys come together in the defense of our population to protest for our privacy ???? The answer is they got a lot of money (tax dollars ) and very big favors. How many of the tech companies ( Google, Facebook, Twitter, and God only knows how many more ) were funded and developed by the C.I.A., N.S.A. and other covert departments and agencies? And it’s not just tech companies !!!! Wake up, it’s now all beginning to be exposed, and it’s not for our GOOD!!!

  7. I went to school at the NSA and then worked on related projects for 2 years in the early to mid-sixties and will say this. All countries, to the extent they are capable, do the same work. I knew of no work “spying” on US citizens. The work being done was important to the security of the US and its allies. Fact is there are people in the world who wish to do us serious harm. What NSA did then and what they do now is important. The loudest critics of the NSA will be joined by those who wish to do us harm to weaken it and give them the advantage.

    That said, one thing I realized while at the NSA is that the few people that I met were no different than any group you would meet anywhere. It was their “day” job. Like any organization they make good and bad decisions. Like any organization they should have some method of oversight and accountability. If criminal activity is involved the people involved should go to jail. It doesn’t mean that the the mission is bad.

    My greatest fear is of the executive administration since its culture, values, and vision will flavor the mission of the NSA. If you have a President who wishes to weaken the US for whatever reason, what better way to do it than to cherry pick the facts to feed to an accommodating press and stir up fear among the citizens of some of our stronger defense tools?

    One thing I am sure of is that we don’t know all the facts. The problem is who do you trust to investigate the facts?

  8. Bravo for finally revealing the 15 faces of the USA. If it is true, that the NSA implanted devices in Cisco’s gear with Cisco’s consent or knowledge it is a crime. Why not stating it clearly and strongly?

  9. 15 years ago a website was launched which discussed NSA crimes and surveillance.
    It was dismissed as ridiculous by all.
    It is still up, waiting for the world to catch up.

    Now that Snowden has published, perhaps it is time for a second look.

    Echelon, as the program was first named, required billions of 1980’s and 90’s dollars to build.

    To fund it they engaged in a series of incredibly high profile terrorist actions and cloaked them
    in a psyops campaign which was so powerful that when they closed the operation with an arrest
    and public trial of the brainwashed patsy, everybody got a good laugh and walked away.

    To this day, if you mention the case to anyone over 25, they are flooded with feelings of ridicule and absurdity.
    To say the word is to define yourself as a nut.
    It worked.

    Don’t let it work on you. Ignore those feelings and take a good look at the deep dark world
    of the NSA as exposed on the site Unabombers.com

    Dan Pride

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