Is the NSA Getting in the Way of American Business in China?
Qualcomm’s (NASDAQ:QCOM) fourth quarter looks like it’s about to get a bit rougher. On Monday, the chip maker reported that China’s National Development and Reform Commission — the nation’s top antitrust watchdog — is investigating the firm under the Chinese Anti-Monopoly Law. The nature of the investigation is confidential, but Qualcomm reports that it is “not aware of any charge by the NDRC that Qualcomm has violated the AML.”
At a glance, it’s unclear how severe the investigation is. China is moving toward a $16 billion upgrade of its telecom infrastructure to 4G LTE (Long-Term Evolution) and is expected to contract with Qualcomm, a leading developer and manufacturer of advanced chips and technology for the telecom industry, for much of the rollout. In the wake of this and other infrastructure projects, the NDRC has announced a broad increase in the volume and scope of its investigations into major corporations, and Qualcomm could simply be caught in the regulatory updraft.
But many observers are not taking the investigation at face value. Last week, Qualcomm CEO Paul Jacobs told The Wall Street Journal that his firm — and most U.S. technology companies, in fact — are “seeing increased pressure” from foreign businesses and governments as a result of Edward Snowden’s leaks regarding the U.S. National Security Agency’s clandestine surveillance programs.
Businesses and governments in Europe reacted quickly and vehemently to news that the NSA was eavesdropping on digital communications previously thought secure and confidential. In August, the Information Technology & Innovation Foundation issued a report suggesting that the U.S. cloud computing business alone stands to lose between $22 billion and $35 billion over the next three years due to lost business.
Qualcomm CEO Jacobs’s comments suggest that it’s not just Europe that is pushing back against American technology firms, and earnings data from the third quarter back up his claims. In November, Cisco Systems (NASDAQ:CSCO) reported underwhelming fiscal first-quarter results that included an 18 percent decline in orders from China. Cisco also reported that it expects ongoing revenue declines in the current quarter in part because of lower demand from China.
To be clear, NSA-related security concerns aren’t the only headwinds facing tech companies like Cisco and Qualcomm in China. Chinese policymakers appear interested in supporting domestic companies as much as possible, which could mean setting up some roadblocks for American firms.
Duncan Clark, chairman of BDA, a technology consultancy based in Beijing, told Reuters that China is trying to repair its domestic chipset manufacturing industry, which is currently in “disarray.”