Will The NSA Hack Wreck Apple Hopes in China?

Jan 7 2014, 6:16am CST | by

It is three weeks now since Apple inked its new deal with China Mobile giving the Cupertino company access to the subscriber base of the world’s largest mobile phone carrier. China Mobile has 763 million customers.

Sadly from Apple’s point of view pre-orders of the iPhone over the first weekend of the deal were a measly 100,000, compared with pre-orders on rival network China Telecom of 150,000, two months ago. In Apple’s favor, China Mobile is rolling out more of its 4G network during the first half of 2014 and initially was expected to ramp up its iPhone sales promotions after that.

However, according to ZD Net, “China Mobile last month also signed LTE/4G distribution deals with 10 Chinese mobile device channel partners, including Xiaomi, Vivo, Oppo, Gome, and Lenovo.” Xiaomi and Lenovo in particular are expanding aggressively. Xiaomi expects to sell 40 million smartphones this year compered to 18 million in 2013. The company has now begun its international expansion on the back of a profit increase of 150% during the past year.

Apple secured record sales of 9 million in two days in its launch elsewhere s the pre-orders must disappoint. Pre-orders are not the same as a launch, of course, and it could well be that the 17th January launch date sees a surge of interest.

Early estimates of the potential impact of the China Mobile deal varied widely with Bloomberg BusinessWeek quoting estimates of up to 15 million additional iPhone sales this year (Time puts their total China sales estimate at 30 million), with $ 9 billion in incremental revenue.

However, anybody expecting a long-term China premium for the Apple stock price should have cause to think again after revelations that the NSA has complete spyware access to iPhones, allegedly turning them into listening devices for the security agency.

It’s now assumed that the NSA first successfully hacked the iPhone in 2008, a revelation from German magazine Der Spiegel and security researcher Jacob Appelbaum.

Applebaum has claimed:

“Either [the NSA] have a huge collection of exploits that work against Apple products, meaning they are hoarding information about critical systems that American companies produce, and sabotaging them, or Apple sabotaged it themselves.

To date there is very little commentary around the impact of the NSA’s surveillance on consumer products. In the B2B spehre, IBM, Microsoft, Hewlett-Packard and, most notably, Cisco Systems have reported drops in sales in China since the larger NSA PRISM surveillance program came to light. CISCO in particular attributes a loss of sales in China on the surveillance revelations.

The official Xinhau news agency, however, reported Apple’s denial of any cooperation with the NSA in creating a backdoor to the iPhone without editorial comment. In fact the general reaction to the news has been a willing acceptance of Apple’s position allied to some skepticism of Applebaum’s rhetoric and its apparent anti-American tone.

However, prior to the latest NSA revelations there was a much stronger fear that surveillance activity played into the hands of regimes in China and Brazil that wanted to curb Internet freedoms.

On the other hand Amazon is extending its AWS business in China by creating a local partnerships. Although the Xinhua agency references the NSA program, the focus of its story is on the new competitive edge Amazon will bring to the China cloud services market.

Meanwhile the San Jose Mercury News suggests that Android and BlackBerry are similarly compromised and that Apple’s reputation for integrity might help it to stand tall alongside cheaper, more hackable phones. Strange though that, as yet, nobody sees the NSA program as a specific consumer device risk. For the moment Apple has a clear run at the growing army of Chinese competitors.

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Source: Forbes Apple

 
 

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