Lenovo caught up in US security
panic By Janice Fioravante
NEW YORK - A US advisory commission has
raised a red flag over a deal for 16,000 computers
for the State Department manufactured by China's
Lenovo Group. The hangup is security -
specifically, the fear that the Chinese could
equip the machines with chips that could spy on
State Department dealings.
It seems that
the same national-security worries that fueled the
hubbub surrounding the Dubai ports deal in the US
- that allowing an Arab-owned firm to operate six
key ports could facilitate
terrorist access to them - are
bubbling up again. The incident is also
reminiscent of energy-security fears surrounding
the attempted purchase of Unocal Oil by the China
National Offshore Oil Corp (CNOOC) last year,
which ultimately killed that deal.
The US
government is planning to spend roughly US$13
million on what the State Department says are
unclassified systems, mostly ThinkCentre M51
desktops with LCD (liquid crystal display)
monitors. The US-China Economic and Security
Review Commission, which reports to the US
Congress from a national-security perspective on
China-US trade dealings, is behind the current
questions. After all, reason its members, if a
foreign government were so inclined, there is a
real opportunity to gather intelligence in
embassies worldwide by inserting extra hardware
and software in the computers.
But
technology and PC (personal computer) industry
experts generally have a quite different view. For
starters, Lenovo finalized its purchase of IBM's
PC business last year, thereby becoming the
third-largest PC maker in the world. The systems
in question are part of the Thinkpad line.
"If you have a Thinkpad that you bought
when it was an IBM Thinkpad, turn it upside down
and you'll see that it says 'made in China',"
noted Brian Gammage, a vice president and analyst
at UK-based Gartner Research. The PC is truly a
global device, he added, and the majority are
manufactured in China no matter whose name is on
the label. Many, if not most, Dell, Apple, Acer,
Sharp, Toshiba and Hewlett-Packard computers also
are assembled in China.
Gammage also
pointed to the standardized, commoditized nature
of PC technology, which makes it more difficult to
insert any "Trojan horse" circuits on to a
motherboard for spying purposes.
"IBM sold
the PC business as a loss; it has such a thin
margin of only 2%," he said. "The days of
tinkering with the chipsets are 10-20 years gone.
Today, the configuration is the same worldwide -
maybe there's a different keypad or power supply,
and maybe there's [a] lower- or higher-cost
chipset being used, but standard components are
the only way to go and still stay in business."
Actually, with the hardware being
standardized, the only security weaknesses could
be in software, he continued, "and any
organization [purchasing foreign-made PCs] would
have the right security processes and tools in
place for how it interacts with the outside world.
It stands to reason that any government arm,
especially, would be taking the necessary steps to
make sure that nothing confidential and private is
leaving its network."
The US State
Department's actual contract, in fact, is not
directly with Lenovo but with a distributor, CDW
Government, a subsidiary of CDW Corp, based in
Vernon Hills, Illinois. According to CDW, the
computers will help the department modernize its
technology systems. Furthermore, the actual
systems in question, surprisingly, are assembled
not in China but in Raleigh, North Carolina, and
Monterrey, Mexico, with chipsets produced in Taiwan. As Gartner's
Gammage stated, the PC is indeed a global device.
But the scrutiny of the deal may
nevertheless gain momentum, encouraged by the
result of the Dubai complaints: the company agreed
to relinquish the port operations in question.
According to an interview with the British
Broadcasting Corp, Lenovo believes that "an open
investigation or probe may negatively affect the
way the company deals with future government
contracts or bids".
Lenovo isn't owned by
the Chinese government, at least not fully. It's a
publicly traded company derived from Legend
Holdings, which was started with Chinese
government backing in 1984. The
government-controlled Chinese Academy of Sciences
holds 65% of Legend and 27% of Lenovo. IBM has a
19% stake in Lenovo as well.
While China
would love to have a multinational PC maker with
global brand recognition like Dell or Apple, the
security flap has raised the company's profile in
a way that it didn't want.
Lenovo says its
business in the United States completely complies
with the requirements for suppliers set by the US
government department responsible for government
procurement. "We would rather not have to go
through these issues every time we win a
government contract," Jeff Carlisle, Lenovo's vice
president of government relations, has said.
That may be unavoidable given the current
mood in the US. But trade watchers expect ultimate
success.
"Once everyone is assured that
there's no security risk, this deal will go
through," predicted Myles Matthews, president and
chief executive officer of the Global Trade and
Technology Center in New York. Politics were
definitely behind the ports brouhaha - "It's an
election year," he pointed out.
Although
the US has indisputably become dependent on
low-cost Chinese consumer goods, and exports to
China have been growing at double-digit rates in
recent years, that still doesn't mean smooth
sailing for Lenovo. The US advisory commission is
expected to deliberate for the next few weeks and
deliver its opinion to Congress, some of whose
members are already grumbling. Donald Manzullo, a
Republican from Illinois, sent a letter to
Secretary of State Condoleezza Rice to complain
about Lenovo's unfair advantage in the PC market,
claiming that it's partially subsidized by the
Chinese government.
But Lenovo's CEO is
William Amelio, an American, and most of its top
managers are not Chinese. In fact, vice president
of government relations Carlisle reiterated that
China is a "completely passive" stakeholder in the
company.
How is the issue playing in
cyberspace? Posts on Slashdot on the topic have
run the gamut from seeing this as just the latest
incident in the United States' outsourcing many
crucial business and government operations to
nations "that are at best neutral and more likely
future enemies", to "you'll never be 100% sure the
hardware isn't Trojaned", to "this is simple
xenophobia, nothing more".
Janice
Fioravante is a New York-based
correspondent.
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