Cisco’s disastrous quarter shows how NSA spying could freeze US companies out
By Christopher Mims
Cisco announced two important things in today’s earnings report: The first is that the company is aggressively moving into the Internet of Things—the effort to connect just about every object on earth to the internet—by rolling out new technologies. The second is that Cisco has seen a huge drop-off in demand for its hardware in emerging markets, which the company blames on fears about the NSA using American hardware to spy on the rest of the world.
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Cisco chief executive John Chambers said on the company’s earnings call that he believes other American technology companies will be similarly affected. Cisco saw orders in Brazil drop 25% and Russia drop 30%. Both Brazil and Russia have expressed official outrage over NSA spying and have announced plans to curb the NSA’s reach.
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Analysts had expected Cisco’s business in emerging markets to increase 6%, but instead it dropped 12%, sending shares of Cisco plunging 10% in after-hours trading.
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This completely unexpected turn, which Chambers said was the fastest swing he had ever seen in emerging markets, comes just as Cisco is trying to establish itself as a bedrock technology provider for of the internet of things, which industry analysis firm IDC says will be an $8.9 trillion market by 2020. This quarter Cisco unveiled the nPower chip, a super-fast processor designed to funnel the enormous volumes of data that the internet of things will generate. Cisco also announced the Network Convergence System, a handful of routers that will use the nPower chip.
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Arguably, the current shift in the underlying infrastructure of the internet makes Cisco and other American companies uniquely vulnerable. The move to cloud services, streaming video and machine to machine communication (i.e., the internet of things) means new standards and new default hardware providers are taking root, and if NSA spying keeps American companies from dominating the market at an early stage, it could mean that in the long run they’ll simply be locked out of these markets while competitors like Huawei and ZTE reap the benefits.
http://qz.com/147313/ciscos-disastrous-quarter-shows-how-nsa-spying-could-freeze-us-companies-out-of-a-trillion-dollar-opportunity/
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