Western Tech Is Ready to Name the Next Red Menace

(Bloomberg Opinion) -- Just as Western hawks learn how to pronounce “Huawei,” expect them to start uttering a more familiar name in the war against perceived Chinese espionage.

The Lenovo brand is stamped onto millions of desktops, laptops and smartphones worldwide. But it’s the Beijing-based company’s growing server business that’s likely to be the topic of conversation among Washington lobbyists seeking to leverage fears of the new Red Menace.

Since servers are at the center of an enterprise’s proprietary data — storing information, managing files, and handling data flow — their security is of utmost importance. Most cyber hacks happen here.

Lenovo Group Ltd.’s enterprise unit, since renamed the Data Center Group, hasn’t posted a profit for years despite (or perhaps because of) its 2015 acquisition of an IBM Corp. server unit. In North America, though, revenue has climbed for the past six quarters.

Globally, Lenovo’s server business is dwarfed by Dell Technologies Inc. and Hewlett Packard Enterprise Co., yet it’s growing faster than both, according to data from IDC. Compatriots Inspur Group and Huawei Technologies Co. are advancing at an even quicker pace, but Lenovo’s global size and name make for a more convenient boogeyman.

Dell and HPE would benefit from Lenovo being mentioned in the same breath as Huawei, regardless of whether it poses a similar threat to the huge networking-equipment maker — or any threat at all. Already I’m hearing anecdotes that large American companies are leery of deploying Lenovo servers, and any firm that seeks to win U.S. government contracts would be wise to heed the political winds.

I haven’t confirmed any companies having turned away Lenovo due to its Chinese heritage — doing so publicly would reduce a buyer’s negotiating leverage with Dell and HPE as they award multimillion-dollar server contracts — but you can be sure that those U.S. competitors will be reminding customers of the benefits of buying American.

Should any “Beware Lenovo” campaign gather momentum in the U.S., then it would be an easy task to export the conversation to allied markets in Europe and Asia.

Those U.S. lobbyists need to be wary, though. Attaching the same label to Lenovo as Huawei has the potential to weaken their argument instead of strengthen it. If they’re unable to make a convincing case that Lenovo truly poses a cybersecurity threat, then decision makers — political and corporate — may be inclined to dismiss concerns over either company. Moreover, this campaign won’t operate in a vacuum: China has a strong army of diplomatic and commercial hand-holders ready to walk through an explanation of why such fears are mere political trickery.

In an interview with the South China Morning Post published Monday, Lenovo Chairman and CEO Yang Yuanqing noted that the company is a global one with operations and R&D in 160 countries. It’s much more geographically diverse than Huawei, garnering just 25 percent of sales domestically compared with 51 percent. A series of Western acquisitions, including the Motorola phone brand in 2014, also makes it far less China-heavy.

So while it’s probably unfair to paint Lenovo in the same shade of red as Huawei, there’s a trade war going on. And as English poet John Lyly once wrote: All is fair in love and war.

To contact the author of this story: Tim Culpan at tculpan1@bloomberg.net

To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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