Nicole Lewis
July 2, 2014
Cyber Espionage Spells Trouble for High-Tech Supply Chain Planning
The US and China are entering a new era of mistrust over the issue of cyber espionage. The impact now threatens supply chain planning at US companies seeking to sell hardware, software, and maintenance and support services into China.
The latest chapter in this ongoing saga comes from a recent Bloomberg News report that the Chinese government is considering replacing the IBM servers that run China’s banking industry with Chinese-made technology. Chinese authorities say such a move would help them protect their financial data. If this report (which relied on four unnamed sources) is true, high-tech supply chain managers must recognize and prepare for slower sales into China.
Additionally, a new level of competition is about to take place as Chinese technology becomes more sophisticated and capable of managing business processes in sensitive markets that have a huge amount of daily transactions.
Last month, the Justice Department announced that five Chinese military officers had been indicted for allegedly hacking into the computers of major American companies (including US Steel Corp. and Alcoa Inc.) and stealing trade secrets.
For its part, the Chinese government cites Edward Snowden’s revelations about electronic surveillance conducted by the National Security Agency Prism project to access, collect, and process foreign intelligence passing through American-made servers. Officials have said the US spies on Chinese companies.
IBM isn’t alone
The mistrust between China and the US is now affecting technology companies’ business relationships.
Cisco Systems recently said that its business in China declined 8% in the quarter that ended April 26. Additionally, the Chinese government recently decided not to use Microsoft Corporation’s Windows 8 operating system for its computers.
One area of technology where companies stands to lose billions of dollars is cloud computing, which runs on high-end mainframe and server technology. According to Forrester Research analyst James Staten, the US cloud computing industry could lose up to $180 billion if foreign customers stop using cloud computing services because of recent revelations regarding the NSA’s electronic surveillance programs.
US tech companies need China
The Chinese economy is still expanding, and companies like IBM view it as an important growth market.
According to the latest forecasts from the IDC Worldwide Black Book, worldwide spending on server systems (all types) will grow 1.6% this year over last year. In China, spending on servers is forecast to grow 8.2%.
Also of note, China has made significant strides in developing comparable technology to match IBM servers and mainframe systems such as IBM’s System z, which is designed to process large amounts of information.
That’s the case being made by Kuba Stolarski, IDC’s research manager for servers, virtualization, and workloads. “China does have a track record now of developing its own processors, including an Itanium-compatible chip, a system-on-a-chip, as well as a SPARC-compatible chip that was used in the Milky-Way 2 supercomputer,” Stolarski told us. “If China has developed its own alternative that is compatible with System z architecture, then they could be trying to migrate away from IBM.”
After more than 30 years of providing China’s banking sector with high-end servers and other technology, IBM is holding out hope that the quality of its products and the strength of its business relationships will shield it from any decision that tempts its clients to look elsewhere for replacement technology.
However, in the new climate of mistrust and suspicion, and with new developments in Chinese technology emerging, the Chinese will be tempted to use their own technology to secure their sensitive data. Inevitably, this will result in a revenue loss for US companies. How much of a loss remains to be seen.
The US and China are entering a new era of mistrust over the issue of cyber espionage. The impact now threatens supply chain planning at US companies seeking to sell hardware, software, and maintenance and support services into China.
The latest chapter in this ongoing saga comes from a recent Bloomberg News report that the Chinese government is considering replacing the IBM servers that run China’s banking industry with Chinese-made technology. Chinese authorities say such a move would help them protect their financial data. If this report (which relied on four unnamed sources) is true, high-tech supply chain managers must recognize and prepare for slower sales into China.
Additionally, a new level of competition is about to take place as Chinese technology becomes more sophisticated and capable of managing business processes in sensitive markets that have a huge amount of daily transactions.
Last month, the Justice Department announced that five Chinese military officers had been indicted for allegedly hacking into the computers of major American companies (including US Steel Corp. and Alcoa Inc.) and stealing trade secrets.
For its part, the Chinese government cites Edward Snowden’s revelations about electronic surveillance conducted by the National Security Agency Prism project to access, collect, and process foreign intelligence passing through American-made servers. Officials have said the US spies on Chinese companies.
IBM isn’t alone
The mistrust between China and the US is now affecting technology companies’ business relationships.
Cisco Systems recently said that its business in China declined 8% in the quarter that ended April 26. Additionally, the Chinese government recently decided not to use Microsoft Corporation’s Windows 8 operating system for its computers.
One area of technology where companies stands to lose billions of dollars is cloud computing, which runs on high-end mainframe and server technology. According to Forrester Research analyst James Staten, the US cloud computing industry could lose up to $180 billion if foreign customers stop using cloud computing services because of recent revelations regarding the NSA’s electronic surveillance programs.
US tech companies need China
The Chinese economy is still expanding, and companies like IBM view it as an important growth market.
According to the latest forecasts from the IDC Worldwide Black Book, worldwide spending on server systems (all types) will grow 1.6% this year over last year. In China, spending on servers is forecast to grow 8.2%.
Also of note, China has made significant strides in developing comparable technology to match IBM servers and mainframe systems such as IBM’s System z, which is designed to process large amounts of information.
That’s the case being made by Kuba Stolarski, IDC’s research manager for servers, virtualization, and workloads. “China does have a track record now of developing its own processors, including an Itanium-compatible chip, a system-on-a-chip, as well as a SPARC-compatible chip that was used in the Milky-Way 2 supercomputer,” Stolarski told us. “If China has developed its own alternative that is compatible with System z architecture, then they could be trying to migrate away from IBM.”
After more than 30 years of providing China’s banking sector with high-end servers and other technology, IBM is holding out hope that the quality of its products and the strength of its business relationships will shield it from any decision that tempts its clients to look elsewhere for replacement technology.
However, in the new climate of mistrust and suspicion, and with new developments in Chinese technology emerging, the Chinese will be tempted to use their own technology to secure their sensitive data. Inevitably, this will result in a revenue loss for US companies. How much of a loss remains to be seen.
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