Chinese Government Raises Security Concerns for IBM, Oracle and EMC

On August 16, a branch of the Chinese government said it would investigate three large U.S.-based technology firms due to “security concerns”, naming IBM, Oracle and EMC.  The move – feeling somewhat similar to the US government’s security concerns on Huawei – is the first time Chinese government officials have openly addressed this issue.

However, this issue extends beyond IBM, Oracle and EMC. There is talk that Chinese government entities and state-owned enterprises (SOEs) will begin to shun foreign IT vendors in their IT environment, and instead replace them with local vendor solutions.  A number of foreign vendors are already feeling the heat.  In Cisco’s FY13 Q4 financial statement last week, its China bookings declined 6% YoY.  We have observed similar trends for IBM in China, and believe it is a headwind that will challenge MNC vendors to further expand their China businesses. 

While it has never been confirmed officially, the latest development seems to suggest the possibility of the Chinese government formalizing it as policy. In the past couple of months, I have already seen SOEs seeking out local suppliers, like Huawei, Inspur, Lenovo, and ZTE. The primary considerations were:

·        CIOs are concerned that critical business and customer data might be compromised after the Snowden revelation.

·        CIOs are cautious about holding off buying foreign equipment, pending new governmental policy in the coming years.  Hence, they want to prepare to protect their current investments.

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HUAWEI’S NEW SWITCH LOOKS PROMISING, AND ITS STORYLINE NEEDS REINFORCING

by Clement Teo, Bryan Wang, Katyayan Gupta (this blog is also published by Clement Teo)

We recently met with Huawei executives during the launch of its latest product in China, the S12700 switch.  The product, which ships in limited quantity in Q1 2014 is designed for managing campus networks, and acts as a core and aggregation switch in the heart of campus networks. While wired/wireless convergence, policy control and management come as standard features, the draw is the Ethernet Network Processor (ENP). The ENP competes against merchant silicon in competitive switch products, and Huawei claims to be able to deliver new programmable services in six months, compared to one to three years for competitive application-specific integrated circuit (ASIC) chips. This helps IT managers respond quicker to the needs of campus network users, especially in the age of BYOD, Big Data, and cloud computing.

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