U.S. technology companies including Cisco Systems Inc and IBM Corp are facing unprecedented difficulties selling their goods and services in China, as fallout from the U.S. spying scandal starts to take a toll.
Cisco said on Wednesday that its revenue would drop 10% this quarter, and continue to contract until the middle of 2014, in part due to a backlash in China against revelations about U.S. government surveillance programs worldwide.
In June, former National Security Agency contractor Edward Snowden revealed the spy agency had hacked network backbones around the world to gain access to sensitive information.
The leaks provoked a storm in the Chinese media and added urgency to Beijing's efforts to use its market power to create indigenous software and hardware capabilities, analysts and businessmen say.
In a call with analysts, Cisco Chairman John Chambers said Cisco "and our peers" were facing "challenging political dynamics" in China.
One of those peers, IBM, reported in October a 22 percent drop in China revenue, leading to a decline of 4% in third-quarter profit for the world's biggest technology services company.
IBM Chief Financial Officer Mark Loughridge attributed the company's problems to the "process surrounding China's development of a broad-based economic reform plan", which caused state-owned enterprises and governments to delay purchasing.
The company subsequently reassigned the head of its growth markets unit. IBM declined to comment for this story.
Beijing has long mistrusted foreign technology companies, China executives said, and the Snowden revelations have exacerbated those concerns.
Although Beijing has not prohibited state firms from purchasing Western-made technology services and equipment, the government has sent a clear message to chose Chinese-made equipment first, China-based executives say.
Beijing is especially focused on security for government, energy, transport, and finance networks.
In August, the National Development and Reform Commission, China's top economic planning body, published a statement setting cyber-security standards for financial institutions, cloud computing and big data, information system secrecy management and industrial controls.
Four domestic software and hardware makers, including China National Software & Service Co., announced this month they have received a "top-tier" rating from the Ministry of Industry and Information Technology.
China National Software's share price has gained nearly 250% since Snowden first revealed the existence of the NSA's clandestine data mining program in June.
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