Shares of Cisco climbed 7% early Thursday after the computer-networking company reported quarterly earnings that beat Wall Street expectations.
The company said revenue rose 3% versus a year ago to $11.9 billion, making for its first growth in two years. This was above analysts’ expectations pf $11.81 billion. It reported adjusted earnings of $0.63 per share, above estimates of $0.59.
The Silicon Valley conglomerate also offered investors strong forward guidance, projecting 3% to 5% year-over-year revenue growth for the third quarter, a stark comparison to the 1% growth it projected in January.
According to one analyst, Cisco could be reversing investor perceptions that it’s a “melting ice cube” up against workload migration and market share pressures. Instead, Cisco showed it can boost profit through new product cycles, accelerating growth rates, and strong margins.
“Growing economies, data growth, and the general shift to a Big Data/Analytics-driven world are big (and accelerating) drivers for them,” George Notter, an equities analyst at Jefferies, wrote.
Notter raised his price target to $48 per share from $40.
It isn’t exactly a secret that the US government has a certain hesitancy when it comes to phones made by Chinese companies, but today, we’re seeing some top security official state that apprehensiveness outright. Many top security officials have come out and recommended that Americans avoid buying phones made by Huawei and ZTE. Such a recommendation won’t really come as much of a shock, and may even do something to solidify some recent rumors we’ve been hearing.
According to CNBC, six of the country’s top intelligence chiefs have advised the Senate Intelligence Committee that Americans shouldn’t buy phones made by Huawei or ZTE. That roster of intellgence chiefs includes some high profile people, including the heads of the FBI, CIA, NSA, and the US director of national intelligence. While these recommendations have existed in the past for those who work for the government, this is the first time that the agencies have advised private citizens on the matter.
By using these phones, FBI director Chris Wray argues, it opens up the potential for “foreign governments that don’t share our values to gain positions of power inside our telecommunications networks.” Some of the downsides Wray covers are things like undetected espionage, or the capacity to “exert pressure or control over our telecommunications infrastructure.”
Huawei, for its part, tells CNBC that it “poses no greater cybersecurity risk than any ICT vendor.” The company also noted that it is “trusted by governments and customers in 170 countries worldwide,” suggesting that this worry is unique to the US.
Whether or not Huawei and ZTE deserve this apprehension is up for debate, but for now, it seems the US government isn’t interested in the perceived risks associated with having those companies gain a foothold in the market. We’ll see if that changes anytime soon, but given the looming threat of cyberwarfare, US security agencies are likely to stay the course for now. Stay tuned.
Huawei has just experienced another setback in its efforts to partners with a major U.S. wireless carrier to sell its smartphones. Verizon was in discussions to sell smartphones from the Chinese OEM, but those talks have hit a brick wall. Huawei ran into similar trouble with AT&T earlier this year.
According to a new report from Bloomberg, U.S. lawmakers put pressure on both AT&T and Verizon to scrap any plans to sell Huawei smartphones to Americans. According to the government officials, there are serious concerns regarding Chinese spying and the possibility that backdoors could be installed on devices.
For its part, Huawei officials acknowledge that breaking into the U.S. market is a bit harder than previously expected. “The U.S. market presents unique challenges for Huawei, and while the Huawei Mate 10 Pro will not be sold by U.S. carriers, we remain committed to this market now and in the future,” said the company in a statement earlier this year following AT&T’s decision for to pull out of a deal.
At CES 2018, Huawei CEO Richard Yu reflected on his company’s troubles with U.S. wireless carriers. “Everybody knows that in the US market that over 90 percent of smartphones are sold by carrier channels,” said Yu. “It’s a big loss for us, and also for carriers, but the bigger loss is for consumers, because consumers don’t have the best choice.”
Yu went on to explain that Huawei has had to prove itself time and time again since its inception. “We win the trust of the Chinese carriers, we win the trust of the emerging markets,” said Yu. “And also we win the trust of the global carriers, all the European and Japanese carriers.” Unfortunately for Huawei, the U.S. government isn’t receptive to its advances.
Despite striking out with America’s two largest wireless carriers, the company is not completely out of the game. Major U.S. retailers including Best Buy, Amazon, Microsoft, Newegg, and B&H will sell the Mate 10 Pro starting on February 18th. Pre-orders for the smartphone will kick off on February 4th.
Back in 2012, both Huawei and ZTE were labeled as security threats to the U.S. by the House Intelligence Committee. “Neither company was willing to provide sufficient evidence to ameliorate the Committee’s concerns. Neither company was forthcoming with detailed information about its formal relationships or regulatory interaction with Chinese authorities,” wrote the congressional panel at the time.
“Huawei, in particular, failed to provide thorough information about its corporate structure, history, ownership, operations, financial arrangements, or management. Most importantly, neither company provided sufficient internal documentation or other evidence to support the limited answers they did provide to Committee investigators.”
More recently, the Trump administration has reportedly tossed around the idea of a nationalized 5G wireless network. The reason for such a network would be to fend off threats from countries like China and Russia. Cyberwarfare and cyberespionage are increasingly becoming problems in our always-connected world, and countries are looking for additional ways to fortify their defenses.
The Chinese phone manufacturer Huawei is bidding to snap up market share in the United States, but lawmakers in Congress are urging AT&T to cut its ties to the phone manufacturer and work with other companies. It’s not the first time Huawei’s government ties have caused heartburn on Capitol Hill, and it comes just a week after Huawei’s US launch of the Mate 10 was reportedly scrubbed at the last second.
These new allegations are from Reuters, which reports US lawmakers also oppose plans from the Chinese telecom China Mobile Ltd to enter the US market. Issues identified by the regulators as problematic also include an AT&T-Huawei collaboration over the emerging 5G standard and AT&T subsidiary Cricket selling Huawei phones as well. Apparently the problems are serious enough that lawmakers have been warning corporations that deploy Huawei hardware that they may not be eligible to work on government contracts.
Huawei’s global market share has risen sharply over the past few years, including strong gains in a matter of months.
If you’re thinking this all sounds rather familiar, well, you’d be right. Both the Trump and Obama Administrations have sounded similar warnings on Huawei over the years. The result is a US smartphone market that’s somewhat different from the globe as a whole. Samsung and Apple are still the top two device manufacturers worldwide, but from there the list diverges. Globally, Huawei, Oppo, and Vivo round out the top five (Others claims a 41.7 percent share of the market). In the United States, LG, Motorola, and HTC round out the top five, or did as of a year ago.
In 2012, both Huawei and ZTE were the subject of a US government investigation into whether their networking equipment and mobile phones offered loopholes or backdoors that could be exploited by actors working for the Chinese government. The government found neither company’s responses sufficient, but hammered Huawei in particular for failures in transparency. Huawei refused to explain aspects of its corporate structure, its ties to the Communist Party, the results of a 1999 tax fraud audit, the situation in which that audit was dropped, or any financial documents that would support Huawei’s claim to operate as a completely independent entity from its parent organization.
While none of Huawei’s potential US partners have said much about the report, Huawei and ZTE handsets remain rarities in the US market. And in a way, that’s a shame. The US market could benefit from better competition in handsets, particularly at the lower end where low-cost Android devices now offer surprisingly good performance for your dollar. Unfortunately, the past few years has also emphasized both the pervasive security problems posed by mobile devices (including the IoT) and the degree to which cyberwarfare has decidedly real-world consequences. From disinformation campaigns to attacks levied at specific sites or companies, things have gotten more heated. The last thing we need is to deliberately invite such problems to take root.
Will U.S. citizens get their first 5G phones from Huawei or ZTE? Not if Congress has its way.
Over the past week, members of Congress have been getting tough on the two Chinese companies, formally identifying both as threats to national security following years of investigations. Today, Reuters reported that unidentified U.S. lawmakers asked AT&T to stop collaborating with Huawei on standards for its next-generation 5G network, and cut ties to Huawei altogether.
The report follows U.S. Representatives Michael Conaway’s and Liz Cheney’s introduction of the Defending U.S. Government Communications Act, a bill to bar the U.S. government from using or contracting with Huawei and ZTE, after a House intelligence committee report concluded that their products were insecure for government and military use.
Today’s report suggests that AT&T walked away from Huawei under pressure from government regulators, who were most likely lobbied by the same members of Congress involved in the investigation. It’s unclear whether or how much AT&T was collaborating with Huawei on 5G; the company was reportedly working with Qualcomm and Ericsson prior to announcing its end of 2018 5G network plans, but could easily have had other partners.
There is good reason to be concerned about the security of cellular networks. As VentureBeat reported last week, the upcoming U.S. launches of two 5G networks will mark the beginning of a long-planned drive to put 5G cellular radios everywhere, and within everything.
Designed to add connectivity to billions of devices — securely — 5G is also expected to serve as the networking technology inside next-generation cities and car traffic infrastructures. Consequently, if a foreign government had a secret back door to infiltrate 5G networks, it could take control of entire cities, including all of their 5G-connected devices and vehicles.
That nightmare scenario is the flip side of the “ubiquitous 5G” dream, and the precise reason 5G was built with new security protocols. As Ericsson noted in a 5G security white paper, the ubiquity of 5G will turn virtual vulnerabilities into tangible public safety threats, so 5G networks demand extra protections: integrated attack resistance, multiple layers of encryption, integrity protection against injection or modification of traffic, and authentication superior to username/password combinations, just to name a few. Today, LTE networks running compromised equipment or software can be susceptible to intrusions, and even networks with solid hardware can be taken down by one or more inexpensive devices.
While Trump administration protectionism might otherwise be blamed for the recent Congressional actions, investigations into Huawei’s and ZTE’s potential threats to critical U.S. infrastructure date back to at least 2012, when 60 Minutes and the aforementioned House report spotlighted the concerns. Although ZTE and Huawei are supposedly private companies, ZTE is state-owned and was founded by investors associated with China’s aerospace ministry; Huawei was started by an ex-Chinese military engineer, and has what has been described as an “opaque” corporate structure. Both are suspected of covert ties to the Chinese government, and neither would explain why Chinese Communist Party committees had been set up within their business structures.
In recent years, both companies have been investigated for breaking U.S. laws: Huawei has been accused of assisting an alleged elite cyberwarfare unit of China’s army, as well as bribery, corruption, and immigration violations, while ZTE pled guilty to selling sanctioned computer equipment to Iran, and allegedly obstructed an investigation into the sales.
At the same time, both companies are in the top five for global telecom equipment sales, with significant supply contracts for overseas governments. Their continued growth depends in part upon the United States market, but given the directions Congress is taking, the likelihood of seeing either company making major inroads here has just dropped significantly.
Proposed by Texan Republican representative Mike Conway, the Defending US Government Communications Act, if enacted would prohibit the US government “from working with service providers that use any equipment from (Huawei or ZTE) for security reasons.” This ban would also extend to any entity that the head of the relevant agency reasonably believes to be controlled or connected to the Chinese government.
Conway commented that “Chinese commercial technology is a vehicle for the Chinese government to spy on United States federal agencies, posing a severe national security threat.”
Cited in the bill was General Michael Hayden, who served as Director of the Central Intelligence Agency and Director of the National Security Agency, he stated in July of 2013 that Huawei had “shared with the Chinese state intimate and extensive knowledge of foreign telecommunications systems it is involved with.”
Extracts from the bill included material from the FBI Counterintelligence Strategy Partnership Intelligence note that asserted that expanded use of Huawei technology equipment and services in US telecommunications significantly increased the risk of the Chinese government accessing US business communications, “China makes no secret that its cyber warfare strategy is predicated on controlling global communications network infrastructure.”
A Headache for Huawei
No doubt this act will be unwelcomed by Huawei, the world’s third-largest smartphone manufacturer and the biggest seller of telecoms equipment after Apple and Samsung, as it will make their task of reaching the US market more laborious. This comes as a further disappointing blow after US mobile carrier AT&T announced last week that it was pulling out of a deal to sell Huawei’s smartphones.
AT&T had come under pressure from US politicians and the Federal Communications Commission (FCC) to halt the deal. Despite this Huawei has said it still plans to continue to launch the Mate 10 Pro without a US Carrier Partner. For now, it will have to rely on selling unlocked devices through online channels.
Huawei’s Hopes For the Future Frustrated
While the US has cited numerous potential security threats from companies like Huawei, Android Authority points out that the “decision protects manufacturers and Apple from a strong competitor muscling in.” If allowed to enter the US market with US government backing, Huawei could have had a significant impact in America and possibly realised its goal of overtaking Apple.
Before the collapse of the AT&T deal and the new bill, Ken Hu, chief executive of Huawei had optimistically predicted in his New Years message that revenue would rise 15%, to earn 600 billion yuan in 2018.
In a 2017 interview with CNBC, Francisco Jeronimo, research director for European Mobile devices at IDC, said: “Huawei is today the biggest challenger to Apple and Samsung. Indeed, they are growing very fast. They will probably overtake Apple in the smartphone business, either this year or next year.”
Huawei is already the second-biggest smartphone supplier in several European countries, including Finland, Italy and Spain. In 2017 it shipped 153 million smartphone units worldwide. According to Business Insider UK, Chinese smartphones hold more appeal as they have a similar level of quality at a fraction of the cost.
Previous Moves to Limit Chinese Telecoms
This isn’t the first time the US has taken steps to limit China’s access to the US market over fears of illicit behaviour. In 2017, Chinese electronics giant ZTE was in 2017 fined over $1 billion after admitting it had violated US-Iran sanctions by shipping product from the US to Iran.
The US is not alone in this approach, in 2013 Australia upheld its ban on prohibiting Huawei bidding on contracts for the country’s National Broadband Network similarly citing cyber security as the reason.
A Long Way to Go
The bill is far from becoming law, it still has to pass the committee stage, then the House and Senate before it can be signed off on by the President. However, if it does manage to navigate the copious amounts of red tape required it will be interesting to see how this impacts US-Sino relations.
Most of us probably don’t realise this, but much of the infrastructure that makes the seamless working of the Internet possible lies at the bottom of the world’s oceans in the form of vast networks of fibre-optic cables that transmit data between countries. In the modern day, the Internet is our lifeline. Now, consider a scenario, which is nothing less than a nightmare. A terrorist organisation or some nefarious nation-state decides to derail the global Internet by faulting the undersea fibre-optic cables that connect the world. These cables, which run along the ocean floor, carry almost all transoceanic digital communication, allowing you to send a WhatsApp message to a friend in Australia or receive an email from your cousin in Colarado. Despite the significant role that these cables play in global communications, they are largely unguarded because of their location underwater. That vulnerability is in the headlines lately due to the recent warnings that Russia could sabotage the cables and disrupt connections between the US and Europe.
A cyber warfare between nations carries potentially devastating consequences. At a time when more than 95% of everything that moves on the global Internet passes through just 200 undersea fibre-optic cables, potential adversaries such as the US, Russia, China and Iran are focusing on these deep-sea information pipes as rich sources of intelligence, as well as targets in war. The weapons earmarked for the struggle include submarines, underwater drones, robots and specialised ships and divers. The new battlefield is also a gray legal zone: Current Law of the Sea conventions cover some aspects of undersea cables, but not hostile acts.
According to reports, Russian submarine activity around undersea cables that provide the Internet and other communications connections to North America and Europe has raised concerns among NATO officials. They believe that an unprecedented amount of Russian deep-sea activity, especially around undersea Internet lines, constitutes a newfound “vulnerability” for NATO nations. Russian submarine activity has increased to levels unseen since the Cold War, sparking hunts in recent months for the elusive watercraft. US Navy officials have warned for years that it would be devastating if Russia, which has been repeatedly caught snooping near the cables, were to attack them. NATO is now planning to resurrect a Cold War-era command post in part to monitor Russian cable activity in the North Atlantic.
It is almost impossible to think of a world where there is no Internet. The idea of the global Internet going dark because some cables were damaged is frightening. But if Russia or anyone else were to snip a handful of the garden hose-sized lines, then the consequences would likely be less severe than the picture the military paints. The world’s Internet infrastructure is vulnerable, but Russia doesn’t present the greatest threat. Before you get too caught up in a nightmare scenario of the Internet suddenly going dark due to sabotage, reports say the system—despite its lack of defenses—is resilient and would be difficult for an enemy nation or terrorist group to disable. The fibre cables that transmit the world’s data are surprisingly slim. There are plenty more complicated problems that start with understanding how the cable system actually works. One of the estimated 428 undersea cables worldwide is damaged every couple of days. Nearly all faults aren’t intentional. They’re caused by underwater earthquakes, rock slides, anchors and boats. That’s not to say that humans are incapable of purposefully messing with the cables. The optical strands inside the cables have extraordinary capacity to transmit data, millions of phone calls per fibre. The cables that house bundled fibre optics are no thicker than a human wrist. The fibre is encased in a hermetically-sealed tube, which is, in turn, surrounded by layers of high-tensile steel wires, copper and polyethylene. For sections in shallower water, where cables are more likely to encounter ship anchors and other manmade hazards, additional layers of armour are sometimes added, or else cables are buried under the seabed. As a result, cables are damaged worldwide only about 200 times a year.
Since the first submarine telegraphic cable was laid across the Atlantic in 1858, undersea cables have mostly been in private hands left alone by governments and global bodies. In some areas, ocean cables must travel through narrow bodies of water that border several countries like in the Strait of Malacca and the Red Sea. In these tight spots, there’s a greater risk of threats like dropped anchors. They’re also potentially subject to geopolitical disputes since a larger number of countries and companies have an interest in the lines that run through those waters. Several locales also serve as hubs for a large number of cables and thus are sites of consolidated risk. If Egypt’s undersea cables ruptured, for instance, at least one-third of the global Internet could go down. There are calls for undersea sensors for cables: creation of backup or “dark” cables that would not be publicly identified.
A planned Huawei Marine Networks submarine cable between Solomon Islands and Sydney could be canceled by the Australian government due to security fears.
The government might fund the AU$100 million (US$78m) project itself, rather than see the cable deployed by HMN, a joint venture between China’s Huawei and Britain’s Global Marine Systems.
Not in my back ocean
Honiara Solomon Islands
Source: Wikimedia Commons/Friars Balsam
A Solomon Islands spokesperson told the Financial Times that an Australian scoping team had recently visited the island nation, which was showing “great interest” in the offer to use development aid to co-finance the cable. “Naturally, if the Solomon Islands government accepts the offer from Australia then no doubt the Huawei deal will have to be canceled,” he said.
The publication added that Australia had already signaled privately that it would not grant landing rights for Huawei Marine Network’s cable, originally announced last year.
“The Huawei deal was red-flagged by the Australian intelligence service,” Jonathan Pryke, analyst at the Lowy Institute think tank told the FT. “The new national security imperative has clearly jolted Australia into action.”
Robert ‘Jake’ Bebber, an information warfare officer at US Cyber Command, added: “Ownership in the undersea cable system, as well as leverage over its installation and maintenance, presents significant strategic opportunities for the People’s Republic of China.”
Having control over the cable would allow China to access communications traffic, including that of the US military, as well as allow it to disrupt communications if it wanted to, he continued.
Reasons for caution
Australia has banned Huawei from taking part in certain national infrastructure projects, including the AU$37.4 billion ($29.2bn) National Broadband Network initiative – the largest infrastructure project in the country’s history.
The company was banned after security concerns were raised in the US, with a 2012 US House of Representatives report claiming Huawei posed a “national security threat” to America.
Authors also claimed they received “internal Huawei documentation from former Huawei employees showing that Huawei provides special network services to an entity the employee believes to be an elite cyber-warfare unit within the [People’s Liberation Army].
“The documents appear authentic and official Huawei material, and the former employee stated that he received the material as a Huawei employee. These documents suggest once again that Huawei officials may not have been forthcoming when describing the company’s R&D or other activities on behalf of the PLA.”
Not long after the US banned Huawei and ZTE from national infrastructure projects, Australia said that it too would restrict activities of the company.
Huawei has repeatedly denied any untoward relationships with the Chinese state. At the time of Australia’s move to restrict Huawei, company spokesperson Jeremy Mitchell said: “If we were found to do one thing wrong, to have one backdoor in any of our equipment, our company would fold overnight and correctly it would be.
“So there’s no way in the world that we would ever risk that. And to be honest I think anyone who would argue that the Chinese government would ask us to do that I think shows a bit of a lack of understanding of modern China.”
In his youth, Ren Zhengfei, the founder and president of Huawei, served as a People’s Liberation Army IT research unit officer, and his ex-wife was the daughter of a the deputy Governor of Sichuan Province. At the World Economic Forum in Davos in 2015, Ren said that “we have never been asked by our government to spy.”
Huawei has also faced accusations of making a SI$40m (US$5m) political donation to the party of then Solomon Islands prime minister Manasseh Sogavare, revealed in a report by the Solomon Islands parliamentary accounts committee. It called for a police inquiry, while Huawei strongly denied the allegations.
The public accounts committee cited rumors that “Huawei Technologies … had promised the Prime Minister a political donation of $40 million for the award of the contract. If true, this is a corrupt and criminal offense and the committee calls on the [Royal Solomon Islands Police] to conduct an urgent investigation into this.
“The committee is of the view that this is the main reason for the government to bypass procurement requirements in favor of the company Huawei.”
A company spokesperson said: “These allegations have no basis in fact. Huawei has never given, implied, nor promised any political donations in relation to this project.”
Sogavare, who left office on 15 November 2017, also denied the claims when they were made public in August, adding: “The security concerns of Australia are also the concerns of Solomon Islands and parties are exploring all options to have the matter resolved amicably.”
The decision to use Huawei Marine Networks was previously criticized by the Asian Development Bank, which pulled $US18m in funding for the project, claiming a lack of transparency around Huawei’s selection. “The Huawei contract was developed outside of ADB procurements processes,” a spokesperson told Fairfax Media.
Despite this potential setback, Huawei Marine Networks remains active in the Pacific ocean, linking Changi in Singapore to Batam in Indonesia in one project, and laying a 5,457km cable to connect Papua New Guinea in another.
Meanwhile, Sino-Australian tensions show no signs of easing.
In a major foreign policy white paper released in November, the Australian government said China had caused “tension” in the South China Sea, adding: “Australia is particularly concerned by the unprecedented pace and scale of China’s activities,” which include building islands and military bases in the disputed territories.
But the foreign policy paper, the first from Australia in 13 years, earned a swift rebuke from Beijing. Chinese foreign ministry spokesperson Lu Kang said: “Australia is not a party directly concerned in the South China Sea issue, and it has made clear many times that it does not take sides. We hope the Australian side will honor its commitment and stop making irresponsible remarks.”