American tech companies in China
A question of trust
Edward Snowden is not the only cause of American firms' Chinese troubles
WHEN Hewlett-Packard reported quarterly results on November 26th, Meg Whitman, the chief executive, noted that the performance of many of its businesses in China had weakened.
HP thus joined a growing list of American technology companies which have given recent warnings of harder times for their Chinese operations.
Some commentators—and the odd executive—have mused that Edward Snowden may have something to answer for.
His revelations about America's technological spying, it is thought, are leading Chinese customers to shun American gear.
Fears of a backlash had been reinforced on November 25th when Qualcomm, an American semiconductor designer, said it was under investigation by an agency responsible for enforcing China's anti-monopoly law.
Qualcomm says that it is not aware of doing anything that might break the law and that it is co-operating with the agency.
Paul Jacobs, its boss, told the Wall Street Journal that all US tech companies are seeing pressure in China right now.
Many are, but the reasons for this are more numerous and complex than Chinese suspicion of American snooping.
Take IBM. Its revenue from China plummeted by 22% in its latest quarter, compared with the same period of 2012.
Big Blue admitted that internal execution problems were partly to blame. Less convincingly, it also cited a delay in the completion of China's latest economic plan and hence the tech spending associated with it.
Cisco is also feeling a chill.
In its latest quarter the Chinese revenues of the American maker of computer-networking equipment were 18% lower than a year before.
Cisco also forecast that its worldwide sales would fall by up to 10% in the current quarter, partly because of weakness in China.
Asked on an earnings conference call whether the Snowden affair was hurting business, Cisco executives said it was causing some Chinese customers to pause before making purchases.
But Cisco's share of sales of routers and switches to internet-service providers such as China Telecom and China Unicom, and to other providers of web-based communications and internet-connectivity services, had been falling well before the spying imbroglio.
David Krozier of Ovum, a research firm, says Cisco left itself vulnerable in China by failing to respond quickly enough to advances by rivals such as Alcatel-Lucent, of France, and Huawei, a Chinese company.
Another American supplier, Juniper Networks, has managed to increase its share.
As for the Qualcomm investigation, it is tempting to see this as a further consequence of Mr Snowden's mischief.
But Qualcomm is not the only foreign company under the microscope.
Recently others, including Danone, a French food firm, and Starbucks, an American coffee-shop chain, have been scrutinised for allegedly fixing prices or charging too much.
The Chinese government could instead be trying to send an unsubtle signal to Qualcomm.
The company dominates the market for chips that let mobile devices use super-fast, 4G mobile networks, which Chinese telecoms firms are rolling out.
The sudden scrutiny may thus be intended to ensure that Qualcomm asks only modest royalties of Chinese handset-makers.
All of this suggests the cost of Mr Snowden's revelations has been modest.
American firms are having difficulties in China partly because of their own missteps, but also because Chinese firms such as Huawei and ZTE have grown into powerful competitors.
The American government has, however, made matters worse by seeking to deter firms in the United States from using Chinese telecoms-networking technology, on the ground that it could threaten national security.
That is fuelling what Ed Maguire of CLSA, an investment bank, calls tech mercantilism.
China had policies favouring local suppliers of tech equipment many months before Mr Snowden's leaks.
A tit-for-tat trade battle will do far more damage to American tech firms' fortunes in China than reports of the shenanigans of their country's spooks.
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