Exclusive: China drops leading technology brands for state purchases

A Cisco logo is seen at its customer briefing centre in Beijing, November 14, 2013.

Credit: /Kim Kyung-Hoon

- China has dropped some of the world's leading technology brands from its approved state purchase lists, while approving thousands more locally made products, in what some say is a response to revelations of widespread Western cybersurveillance.

Others put the shift down to a protectionist impulse to shield China's domestic technology industry from competition.

Chief casualty is U.S. network equipment maker Cisco Systems Inc (CSCO.O), which in 2012 counted 60 products on the Central Government Procurement Center's (CGPC) list, but by late 2014 had none, a analysis of official data shows.

Smartphone and PC maker Apple Inc (AAPL.O) has also been dropped over the period, along with Intel Corp's (INTC.O) security software firm McAfee and network and server software firm Citrix Systems (CTXS.O).

The number of products on the list, which covers regular spending by central ministries, jumped by more than 2,000 in two years to just under 5,000, but the increase is almost entirely due to local makers.

The number of approved foreign tech brands fell by a third, while less than half of those with security-related products survived the cull.

An official at the procurement agency said there were many reasons why local makers might be preferred, including sheer weight of numbers and the fact that domestic security technology firms offered more product guarantees than overseas rivals.

China's change of tack coincided with leaks by former U.S. National Security Agency (NSA) contractor Edward Snowden in mid-2013 that exposed several global surveillance program, many of them run by the NSA with the cooperation of telecom companies and European governments.

"The Snowden incident, it's become a real concern, especially for top leaders," said Tu Xinquan, Associate Director of the China Institute of WTO Studies at the University of International Business and Economics in Beijing. "In some sense the American government has some responsibility for that; (China's) concerns have some legitimacy."

Cybersecurity has been a significant irritant in U.S.-China ties, with both sides accusing the other of abuses.

U.S. tech groups wrote last month to the Chinese administration complaining about some of its new cybersecurity regulations, some of which force technology vendors to Chinese banks to hand over secret source code and adopt Chinese encryption algorithms.

The CGPC list, which details products by brand and type, is approved by China's Ministry of Finance, the CGPC official said. The list does not detail what quantity of a product has been purchased, and does not bind local government or state-owned enterprises, nor the military, which runs its own system of procurement approval.

The Ministry of Finance declined immediate comment.

"We have previously acknowledged that geopolitical concerns have impacted our business in certain emerging markets," said a Cisco spokesman.

An Intel spokesman said the company had frequent conversations at various levels of the U.S. and Chinese governments, but did not provide further details.

Apple declined to comment, and Citrix was not immediately available to comment.

SECURITY PRETEXT?

Industry insiders also see in the changing profile of the CGPC list a wider strategic goal to help Chinese tech firms get a bigger slice of China's information and communications technology market, which is tipped to grow 11.4 percent to $465.6 billion in 2015, according to tech research firm IDC.

"There's no doubt that the SOE segment of the market has been favoring the local indigenous content," said an executive at a Western technology firm who declined to be identified.

The executive said the post-Snowden security concerns were a pretext. The real objective was to nurture China's domestic tech industry and subsequently support its expansion overseas.

China also wants to move to a more consumption-based economy, which would be helped by Chinese authorities and companies buying local technology, the executive said.

Policy measures supporting the broader strategy include making foreign companies form domestic partnerships, participate in technology transfers and hand over intellectual property in the name of information security.

Wang Zhihai, president and CEO of Beijing Wondersoft, which provides information security products to government, state banks and private companies, said the market in China was fair, especially compared with the United States, where China's Huawei Technologies [HWT.UL], the world's largest networking and telecoms equipment maker, was unable to do business due to U.S. security concerns.

Local companies were also bound by the same cybersecurity laws that U.S. companies were objecting to, he added.

The danger for China, say experts, is that it could leave itself dependent on domestic technology, which remains inferior to foreign market leaders and more vulnerable to cyber attack.

Some of those benefiting from policies encouraging domestic procurement accept that Chinese companies trail foreign competitors in the security sphere.

"In China, information security compared to international levels is still very far behind; the entire understanding of it is behind," said Wondersoft's Wang.

But Wang, like China, is taking the long view.

"In 10 or more years, that's when we should be there."

Uber makes uberX ride-sharing service free in Seoul

David Plouffe, Uber's senior vice president of policy and strategy, speaks during a news conference in Seoul February 4, 2015.

Credit: /Lee Ji-eun/Yonhap

- U.S. taxi service provider Uber Technologies Inc on Wednesday said it will make its low-cost uberX ride-sharing service available free of charge in Seoul, in its second bid this month to operate legally in South Korea.

Uber started charging a fee last year for the taxi-like service, which matches passengers via a smartphone app with private drivers who do not hold commercial transport licenses.

Prosecutors subsequently indicted Uber's chief executive, Travis Kalanick, as well as its South Korean unit for violating a law prohibiting individuals or firms without proper commercial licenses from providing or facilitating transportation services.

"We want to actively work towards a consensus, and the first step to that process is switching off the fare," Uber's head of north Asia Allen Penn said in a statement.

Uber proposed a new registration system for its drivers in South Korea earlier this month in a bid to operate legally. But the transport ministry rejected the proposal and said it would stop the company offering its services.

Uber has been the subject of similar regulatory ire in countries around the world, even as it expanded into more than 290 cities.

In January, the city of Seoul declared Uber's services illegal and started offering rewards of up to 1 million won ($911) for people who reported private drivers providing transport through the company.

Yang Wan-soon, director of the Seoul city government's taxi and logistics division, told it is up to the courts to decide whether Uber can operate legally.

"The city also needs to consider whether the free taxi service would disrupt existing market order," Yang said.

Gemalto acknowledges it was probably victim of spy hacking

SIM cards are reflected on a monitor showing binary digits in this photo illustration taken in Sarajevo February 23, 2015.

Credit: /Dado Ruvic

- Gemalto, the world's largest maker of mobile SIM cards, said a preliminary company probe of sophisticated attacks against it in 2010 and 2011 showed British and U.S. intelligence services "probably" hacked into its office networks.

Gemalto said the suspected attacks by the U.S. National Security Agency (NSA) and Britain's Government Communications Headquarters (GCHQ) "probably happened", but said the intrusions "only breached its office networks" and "could not have resulted in a massive theft of SIM encryption keys".

The Franco-Dutch company was responding to a report by investigative news site The Intercept, which last week published documents it said showed that U.S. and British spies hacked into Gemalto, potentially allowing them to monitor the calls, texts and emails of billions of mobile users around the world.

Gemalto said the spy operation aimed to intercept the encryption codes needed to unlock security for Subscriber Identity Modules (SIMs) while the modules were shipped from its production facilities to mobile network operators worldwide.

However, the company argued that the break-ins were limited to rare exceptions, that they were likely to only have affected older model phones that are widely used in emerging markets and that other Gemalto products for secure financial payments were unaffected.

"By 2010, Gemalto had already widely deployed a secure transfer system with its customers and only rare exceptions to this scheme could have led to theft," it said.

Gemalto added that intelligence services would only be able to spy on communications on second-generation 2G mobile networks as 3G and 4G networks were not vulnerable to this type of attack.

"None of our other products were impacted by this attack," Gemalto added.

Gemalto said on Wednesday that it had experienced many attacks during the period covered in the Intercept report.

"In particular, in 2010 and 2011, we detected two particularly sophisticated intrusions which could be related to the operation," the company acknowledged on Wednesday.

CEO says Sony won't rush into resuming dividends

Sony Corp's President and Chief Executive Officer Kazuo Hirai attends a corporate strategy meeting at the company's headquarters in Tokyo February 18, 2015.

Credit: /Issei Kato

- Sony Corp Chief Executive Kazuo Hirai said he wants to resume dividend payments to shareholders when he succeeds in turning the company around, instead of rushing payouts.

Sony said in September that it was scrapping dividends for the first time since going public due to weak mobile phone sales.

The company, once a symbol of Japan's technology prowess, is in the midst of a restructuring that has so far seen it ax thousands of jobs and sell off its personal computer division.

"We are sorry there are no dividends, but we don't need to resume payouts at all costs," Hirai told reporters on Wednesday.

"The logic is that we want to resume payouts as a result of reforms, rather than rushing."

As part of its restructuring, Sony has also spun off its TV business and said last week it would also split off its audio and video business as part of a new strategy to encourage greater autonomy of its subsidiaries.

Hirai said he could not rule out the option of taking the spun-off subsidiaries public in the future.

But he also said the company wanted to try and keep its TV operations although he said last week that a sale of the unit, along with its struggling mobile division, could not be ruled out.

"In some ways, the TV occupies a prime position in the household and its relationship with other products," he said, explaining that the TV business' pursuit of better images and sound helped improve technology of its other products such as smartphones.

Apple to pay $533 million for patent infringement

The Apple logo is pictured inside the newly opened Omotesando Apple store at a shopping district in Tokyo June 26, 2014.

Credit: /Yuya Shino

- Apple Inc has been ordered to pay $532.9 million after a federal jury found its iTunes software infringed three patents owned by Texas-based patent licensing company Smartflash LLC.

Though Smartflash had been asking for $852 million in damages, the verdict, which came late Tuesday night, was still a costly blow for the U.S. tech giant, the most valuable company in the world.

After deliberating for eight hours in the U.S. District Court for the Eastern District of Texas, the jury said that Apple not only used the Smartflash patents without permission, but did so willfully.

Apple suggested the outcome was another reason why reform is needed in the patent system to curb litigation by companies that do not make products themselves, such as Smartflash.

The case is Smartflash LLC, et al v. Apple, Inc, et al, in the U.S. District Court for the Eastern District of Texas, No. 13-cv-447.

Samsung Electronics, China trade deal give boost to South Korea's yuan hub ambitions

A man walks at the Samsung Electronics' headquarters in Seoul January 7, 2015.

Credit: /Kim Hong-Ji

- Tech giant Samsung Electronics gave a big boost on Wednesday to Seoul's ambitions to become a global hub for the offshore yuan business, saying it was preparing to start trading the Chinese currency directly with the South Korean won.

The news came as the South Korean government announced that it hoped to sign a final free trade agreement with China within the first half of the year, in a further sign of strengthening relations between the countries.

South Korea became the third country in the world to begin direct trading of the yuan for a local currency in December under the aim of grabbing a larger share of the growing business opportunities involving the yuan outside China.

"This is an encouraging development given that one of the weaknesses on the market was the low demand or supply from the corporate sector," said Song In-chang, head of the finance ministry's international finance bureau.

"I hope Samsung's plan to participate in the market will influence other big companies also to join," he added.

Samsung said in a statement it was "looking into starting won-yuan direct trading". It did not elaborate, but traders said such a move would be a big boost for the market, which until now has been in operation led by banks designated as market-makers.

"The fact that there's real demand and supply for commercial purposes carries a big significance even though the amount is small," said one currency dealer at a local bank.

Over the long term, the yuan-won rate closely tracks the calculated price from each currency's value against the U.S. dollar, but companies can save costs and reduce the risk from exchange-range volatility in the meantime.

South Korea has been encouraging companies trading with China to settle transactions with the yuan or the won instead of the U.S. dollar, but actual use of the local currencies in trade deals remains very low.

It is not clear how much trading volume Samsung can generate on its own. The company uses the currency market to settle direct transactions between its headquarters and its foreign subsidiaries.

Separately, South Korea said it and China had completed the "initializing" process on a free trade agreement and were aiming to formally sign the pact within the first half of this year, which would sharply reduce barriers to commerce and investment.

Leaders of the two countries said in November that they had made substantial progress in negotiations.

South Korea ran a $55 billion trade surplus with China in 2014. According to the Bank of Korea, 3.6 percent of South Korean exports to China and 2.3 percent of imports were settled with the won or the yuan during the fourth quarter.

The deal comes as South Korea has yet to decide whether to join the United States-initiated Trans-Pacific Partnership pact, aimed at slashing trade barriers between a dozen countries.

Exclusive: Cap Gemini, Carlyle held talks to buy Computer Sciences - sources

A general view of the lobby outside of the Carlyle Group offices in Washington, May 3, 2012.

Credit: /Jonathan Ernst

- Technology consultant Computer Sciences Corp drew buyout interest from French consulting company Cap Gemini SA and private equity firm Carlyle Group LP, according to people familiar with the matter.

Talks between CSC and the consortium of Cap Gemini and Carlyle started late last year but have since fizzled, the sources said on Tuesday. It is unclear whether these talks will resume, they added.

CSC, which has a market capitalization of about $10 billion, is now working with Royal Bank of Canada to review its options, the people said.

The sources requested anonymity because the talks are confidential.

Cap Gemini said it was not engaged in ongoing discussions regarding a transaction. CSC, Carlyle and Royal Bank of Canada declined to comment. Computer Sciences shares ended trading on Tuesday down 1.3 percent at $70.84

Hedge fund Jana Partners LLC disclosed a 5.9 percent stake in CSC on Monday and said it would continue talks with the IT services and government contracting company about strategic alternatives and its board composition.

CSC's customers include governments as well as commercial enterprises around the world. France's Cap Gemini would need an American partner such as Carlyle to purchase any part of CSC's business that cannot be owned by a non-U.S. entity for national security reasons. One of CSC's customers is the U.S. Department of Defense.

CSC has been the subject of buyout interest over the years. One person close to a previous round of discussions, nearly 10 years ago, said talks fell apart because another party and a private equity firm that had "partnered" to buy CSC could not agree on how to divide the Falls Church, Virginia-based company.

CSC’s revenue has been on the decline this year, dropping 4.2 percent in the first nine months of its current fiscal year to $9.26 billion. CEO Mike Lawrie blamed the sales decline partly on “execution missteps” in a Feb 9 conference call. The company is in the midst of a cost-cutting campaign while also facing sequestration and budget pressures from the U.S. government.

Anthem says hack may affect more than 8.8 million other BCBS members

The office building of health insurer Anthem is seen in Los Angeles, California February 5, 2015.

Credit: /Gus Ruelas

- Health insurer Anthem Inc, which earlier this month reported that it was hit by a massive cyberbreach, said on Tuesday that 8.8 million to 18.8 million people who were members of other Blue Cross Blue Shield plans could be victims in the attack.

Anthem, the second-largest U.S. health insurer, is part of a national network of independently run Blue Cross Blue Shield plans through which BCBS customers can receive medical services when they are in an area where BCBS is operated by a different company.

It is those Blue Cross Blue Shield customers who were potentially affected because their records may be included in the database that was hacked, the company said.

It is the first time that Anthem has quantified the impact of the breach on members of health insurance plans that it does not operate.

Anthem updated the total number of records accessed in the database to 78.8 million customers from its initial estimate of 80 million, which includes 14 million incomplete records that it found.

Anthem does not know the exact number of Anthem versus non-Anthem customers affected by the breach because of those incomplete records, which prevent it from linking all members with their plan, Anthem spokeswoman Kristin Binns said.

Security experts are warning that healthcare and insurance companies are especially vulnerable to cybercriminals who want to steal personal information to sell on the underground market.

Anthem continued to estimate that tens of millions of customer records were stolen, rather than accessed in the existing database. The spokeswoman added that the company's investigation was ongoing. Federal and state authorities are also investigating.

Anthem runs Blue Cross Blue Shield healthcare plans in 14 states, while plans in states such as Texas and Florida are run independently. In all, 37 companies cover about 105 million people under the Blue Cross Blue Shield license.

Binns said the company still believes the hacked data were restricted to names, dates of birth, member ID/Social Security numbers, addresses, phone numbers, email addresses and employment information such as income data.

Anthem will start mailing letters next week to Anthem customers and other Blue Cross Blue Shield members affected by the hacking. It will offer two years of identity theft repair assistance, credit monitoring, identity theft insurance and fraud detection.