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Cisco Systems is one of several U.S.-based tech companies that Chinese media reports are claiming are being used to help the U.S. government spy on China in the wake of details about government surveillance programs leaked by former intelligence consultant Edward Snowden.
According to reports, Chinese media are claiming that Cisco, Microsoft, Apple, Google and IBM, among others, pose a security risk to the Chinese government, and that the Chinese should develop their own Internet technology and reduce its reliance on technology from U.S.-based companies.
Other companies cited by such publications as Global Times and Sina are Oracle, Qualcomm and Intel.
Snowden, a security consultant for Booz Allen Hamilton, fled the country with classified information into U.S. surveillance programs by such entities as the National Security Agency. He told a reporter from The Guardian newspaper that the United States used Cisco equipment in its efforts to spy on China.
Cisco officials have denied that the company played any role in the U.S. surveillance programs.
“Cisco does not monitor communications of private citizens or government organizations in China or anywhere in the world,” Cisco spokesman John Earnhardt told Bloomberg. “We sell the same equipment globally, including both China and the United States, with no customization for purposes of such programs.”
China is seen as a significant emerging growth market by most technology companies, so any move by the Chinese government to curtail or ban sales of products in that country could have a negative impact on the vendors. According to reports, Cisco gets about $2 billion in revenue every year from the Chinese market, though Earnhardt said the country represented less than 5 percent of the company’s overall profits and revenues.
Still, it’s a market with tremendous upside, and having Cisco out of the way would give more running room for Chinese networking vendors Huawei Technologies and ZTE, both of which already control much larger shares of the Chinese market than Cisco.
According to Infonetics Research, Cisco has seen its market share in China fall from 21 percent in 2010 to 18 percent in 2012, while ZTE’s grew from 18 to 29 percent. Huawei still has about double the market share that Cisco has.
In speaking with analysts and journalists in May to talk about the company’s quarterly financial results, Cisco CEO John Chambers reiterated how important emerging markets—not only China, but such places as India, Brazil and Russia as well—are to the company. Chambers noted that Cisco’s revenues in emerging markets grew 13 percent year over year.
However, he also admitted that the company was struggling in China.
“We also continue to see challenges in China, largely Cisco-specific, relating to the business environment,” Chambers said. “We do believe we are making progress, although we expect these challenges in China to last for several more quarters.”
The issues Cisco is seeing in China—including the latest claims by Chinese media—echo similar claims made in the United States against Huawei and ZTE. U.S. officials have been vocal in their belief that the Chinese government has been behind some cyber-attacks in the United States. U.S. lawmakers last year expressed concern that Huawei and ZTE could be leveraged by the Chinese government for espionage here and that they pose a national security risk. President Barack Obama in May signed a spending bill prohibiting U.S. wireless carriers to refuse to use telecommunications equipment from either company.
Officials from both Huawei and ZTE denied the U.S. claims, and Huawei officials eventually said they were no longer interested in the U.S. telecommunications market, though they still plan to make a push into U.S. enterprises.
Infonetics co-founder Michael Howard told Bloomberg that while Cisco could be hurt in China by the controversy, carriers such as China Mobile and China Unicom in Hong Kong would be reluctant to entirely give up Cisco products.
“Cisco gear is always going to be in China’s backbone networks,” Howard said. Major Chinese carriers “don’t want to wind up having just Huawei and ZTE.”
Ray Mota, founder of ACG Research, also noted that Cisco in the 1990s helped the Chinese government develop that country’s Internet infrastructure and works with thousands of Chinese technicians to train them how to use Cisco products.