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.
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.
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.
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.
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.
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.