July 01, 2014, 1:56 AM — Lenovo's planned purchase of IBM's x86 server business has hit a snag due to the accusations flying back and forth between the US and China over cyberspying.
The deal was first announced in January although there were rumors of a deal late in 2013. That time, it stalled over pricing. It's not their first dance. Lenovo had purchased IBM's PC group in 2005 and has risen to a dominant position in the PC market in the US and worldwide on the back of that deal, thanks no doubt to the fact that IBM sells Lenovo laptops to its services customers.
The deal was seen as a good for all sides, although there was objection from, of all places, IBM China employees. But last week, The Wall Street Journal reported that the Committee on Foreign Investment in the United States (CFIUS), a small branch of the Department of Treasury, put a halt on the deal while it investigates potential national security concerns.
What national security concerns? Well for starters, the Defense Department uses IBM servers, and China launches constant attacks on the Pentagon and other DoD servers. It's gotten so bad you can actually watch it on a real-time map maintained Norse Corp., a cybersecurity firm that's actually in San Mateo, Calif., not a Nordic nation.
Norse maintains a network of “honeypots,” which serve as lures for cyberattacks. The trick then is to trace back the attack to its point of origin. The map shows that the US and China are the two worst instigators of attacks, and often not too far apart in terms of sheer volume, either. But the US is far and away the biggest target.
With China making so much vital electronics, CFIUS has been increasingly aggressive in scrutinizing US/China deals. It pushed back some when Lenovo bought IBM's PC business, and while it let the deal go through, it also alerted officials at the Defense Department officials and State Department to security incidents involving the PCs, and the State Department banned the use of Lenovo PCs on its classified networks in the U.S. and abroad, according to the WSJ.
The official reason is CFIUS is reportedly concerned that IBM's x86 servers could be subverted by Lenovo on behest of the Chinese government and a backdoor surreptitiously inserted in the hardware.
It could be paranoia, or it could be projection, because the US is guilty of almost just that. At first, China said nothing about the allegations of the US government spying on its own citizens – how could it? But then word leaked that the US was exploiting routers and other products from Chinese-owned firms like Huawei, China got a little upset.
Another concern is that China could make a really big supercomputer with all those servers, which could aid China's military. That's patently absurd; China already has the fastest supercomputer in the world. It doesn't need one of its tech firms to buy the low-end server line from IBM. If they were buying IBM's Power line, I could see the argument. But IBM will never sell the P series.
So for now, the deal and thousands of employees are in limbo while CFIUS "investigates," which is likely an excuse to push China's buttons.