Cisco Systems, Inc. (NASDAQ:CSCO) released its earnings report for the third quarter of the year on Wednesday, and the market has reacted strongly. The company’s shares were down by more than 12% at time of writing, and there was a wholly negative feeling about the company on Wall Street. The reason, according to Reuters, may be the NSA.
Over the last few years there have been a couple of allegations that the government of China was using its power over Chinese electronic giants to steal information in the United States. Those accusations were never proven. There is much stronger evidence that the United States is using its power over big firms to steal information from China.
Cisco hurts from China trouble
Cisco Systems, Inc. (NASDAQ:CSCO) was hit by much lower than expected sales in China in the third quarter. Some analysts, like Evercore Partners analyst Mark McKechnie, are saying that some of the fall off stems from Chinese worries about NSA spying.The third quarter of the year was dominated by news of NSA spying across the world. Chinese companies appear to be listening.
Cisco Systems, Inc. (NASDAQ:CSCO) CFO Frank Calderoni said that the company’s revenue fall off was in part due to the political problems it was seeing in China, but the company could not say how much of the fall off in revenue was related to that, rather than other problems in the business.
The NSA information collecting program is hitting big companies in the United States. Sales at both Cisco Systems, Inc. (NASDAQ:CSCO) and International Business Machines Corp. (NYSE:IBM) collapsed in China in their most recent quarters. Both companies are being hit by the actions of the United States government. That is causing problems for the company now, and it may cause problems for the government in the coming months.
Cisco, IBM, government backlash
The United States has been suspicious of several Chinese companies trying to buy up American firms in recent years. National security concerns are becoming a more important point for regulators to consider during acquisitions. The fact that the Chinese are just as careful in their dealings with American companies should not come as a surprise, particularly since some of the companies have admitted being forced to hand over information to government agencies.
When big business is harmed by a government policy, that policy tends to be looked at pretty carefully. The job of the U.S. government is to build an economic system that allows private business to create wealth. The system works reasonably well, but things can get complicated when government policy appears to act against the interests of the businesses they are supposed to protect.
The NSA and its supporters will argue that the fallout from the spying scandal is nowhere near as harmful to the business atmosphere as a large terrorist attack would be. If the scandal continues to depress earnings at IBM and Cisco Systems, Inc. (NASDAQ:CSCO), the business community may come out strongly against the policy, and it could change thinking in Washington.