Back in November, Cisco stock cratered [7]after the company was forced to reset its future revenue guidance when as a result of crashing Chinese sales, it became clear that some $2 billion in quarterly revenue had been wiped away from the previous trendline.
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Since then, Cisco has managed to regain some of the lost market value as investors have readjusted to what now appears to be a far slower growth rate for the company (a few days ago it reported $11.55 billion in revenue, $1 billion less than firms such as Goldman has expected it would reported as recently as 6 months ago).
However, one question remained - what was it that caused the collapse in sales, and especially those targeting the Chinese market.
For a long time, the most likely speculated reason for the Chinese revulsion against Cisco and its peers were the factual revelations by Edward Snowden detailing the NSA illicit espionage activities, and the role of corporations such as Cisco in them.
Today, this speculation is confirmed, following news that none other than Cisco CEO John Chambers has written a letter to Obama, "warning of a collapse of trust in US technology after evidence emerged showing the National Security Agency breaking into his company’s equipment."
As the Financial Times reports having seen a letter from the CSCO executive, John Chambers called for “standards of conduct” to rein in government surveillance so that national security objectives do not interfere with the US’s leading position in the global technology market.
Ironic that companies kept silent about their pseudo-symbiotic relationship with the US superspy agency, but it was only after billions in sales (and equity) were destroyed that the companies have finally decided to speak up. To wit:
The letter was dated the day after pictures circulated on the internet showing NSA staff opening boxes of Cisco gear so that the US security agency can monitor internet traffic after the equipment has been shipped to customers.
Mr Chambers complained that the NSA actions would undermine confidence among customers of US technology firms. A spokesperson for Cisco confirmed that its chief executive had sent the letter but declined to comment any further.
“We simply cannot operate this way, our customers trust us to be able to deliver to their doorsteps products that meet the highest standards of integrity and security,” the letter from Mr Chambers states.
There have been allegations that the NSA has intercepted IT equipment in transit from manufacturers to customers to help monitor and gain information on surveillance targets. The equipment modified by the NSA included routers, servers and other computer network devices exported from the US, according to the reports.
The NSA responded that “the implication that NSA’s foreign intelligence collection is arbitrary and unconstrained is false” but would not address specific incidences.
The letter from Cisco says that “if these allegations are true, these actions will undermine confidence in our industry and in the ability of technology companies to deliver products globally”.
So now that the blowback from the discovery of the mutually parasitic coexistence of the NSA and firms like Cisco has been laid out for the whole world to see, and especially China, what are the CEOs to do? Why engage in public spectacles of course, such as this one:
In his May 15 letter, Mr Chambers asked Mr Obama “to take more steps and a leadership role to ensure that guidelines and reforms are put into place that can be honoured across the globe”.
Mr Chambers said that confidence in the open, global internet has brought economic benefits to the US, but that this would be “eroded by revelations of government’s surveillance . . . and allegations that governments exploit rather than report security vulnerabilities”.
He added: “Absent a new approach where the industry plays a role, but in which you, Mr President, can lead, we are concerned that our country’s global technological leadership will be impaired. Moreover, the result could be a fragmented internet, where the promise of the next internet is never fully realised.”
We are confident Obama, whose international positioning in the world has never been weaker after one disastrous campaign in Syria and what is shaping up to be another disastrous campaign in Ukraine, will get right on it.