Beijing's recent campaign against foreign tech firms is picking up more momentum, with word that security software makers Symantec (Nasdaq: SYMC) and Kaspersky Lab have been banned from selling to government agencies. The move continues a trend that has seen Beijing take similar moves against software from Microsoft (Nasdaq: MSFT) and hardware from IBM (NYSE: IBM) over worries that their products could compromise national security.
Meantime in another ominous sign for foreign tech firms, a government ministry that conducts anti-monopoly investigations is warning Microsoft not to interfere with its ongoing probe of the company. Industry watchers will note that the warning from the State Administration of Industry and Commerce (SAIC) comes as an unrelated trial gets set to start for a British-American couple being charged with interfering in a bribery probe into British drug giant GlaxoSmithKline (NYSE:GSK).
In all fairness, foreign companies aren't the only ones being probed right now by Beijing, which is also aggressively pursuing top officials for corruption at major state-run firms and in government offices. What's more, the many actions taken by Beijing due to security concerns are mostly limited to government buying, which comprises just a portion of the foreign tech companies' China business. By comparison, Washington's 2012 decision to ban the import of telecoms equipment from Chinese giants Huawei and ZTE (OTC:ZTCOY) is more comprehensive, affecting buying from both government bodies and private telcos.
Let's begin our "investigation round-up" with the latest directive from Beijing, which formally bans all government offices from installing Symantec and Kaspersky software on their computers. (English article; Chinese article) Symantec is a top US company in the security software space, while Kaspersky is a leading Russian maker of similar software. To date, this is one of the first such bans that directly targets a non-US tech company.
That said, many of the world's major tech firms are based in the US, so it's not too surprising that most companies targeted by similar moves to date, including IBM and Cisco (Nasdaq: CSCO), are also American. The Beijing blacklist has been mostly aimed at hardware makers so far, but expanded into software in May when Beijing banned the use of Microsoft's new Windows 8 operating system on government computers. (previous post)
Microsoft's China woes grew further still last month, when 4 of its local offices were visited by SAIC investigators as part of an anti-monopoly probe. (previous post) Microsoft joined fellow US company Qualcomm (Nasdaq: QCOM), the world's leading maker of cellphone chips, in being investigated by Beijing for monopolistic practices. Both companies count China as one of their top global markets, and major negative developments there would almost certainly have a significant impact on their business and stock prices.
Now in the latest headlines on the Microsoft case, the SAIC has taken the unusual step of coming out and very publicly warning Microsoft not to interfere in its investigation. (Chinese article) The reports add that SAIC has interviewed Microsoft global vice president Mary Snapp as part of the ongoing investigation.
This particular news bit looks significant due to the very public way that the SAIC is warning Microsoft. China's regulators are usually quite media shy, and this particular move also comes as British citizen Peter Humphrey and his American wife prepare to go on trial in Shanghai for interfering in an anti-corruption investigation against GlaxoSmithKline. In that instance, GSK hired Humphrey as private consultant to try to find out information about the investigation against it.
That case has attracted global media attention, which has put pressure on Beijing to conduct the trial in an open and transparent manner. Thus this latest warning to Microsoft is probably at least partially aimed at preventing something similar from happening again. On the whole, Microsoft, Symantec and Kaspersky are looking at turbulent times ahead in China, and I suspect we'll see more foreign tech names added to the list of companies being banned and probed in the months ahead.
Bottom line: Government bans on Symantec and Kaspersky, and a new warning to Microsoft, reflect mounting pressure that will keep building in Beijing's campaign against foreign tech firms.
Disclosure: Author has holdings in QCOM and CSCO.