Perspective: Lenovo smear is grossly unfair

The assertion by U.S. Rep. Donald Manzullo that Lenovo doesn't have to compete because it's owned by the Chinese government comes from somewhere between left field and the lunatic fringe.

And his request that the State Department investigate its decision to buy 16,000 Lenovo-made PCs is downright xenophobic, not to mention a blatant disregard of the facts. One might wonder whether Lenovo's competitors put him up to it, but there are precious few PC hardware manufacturers in his Illinois district.

The original Lenovo was founded by scientists and engineers from the Chinese Academy of Sciences, a government arm, and the Chinese government retains a 27 percent interest in the company. But that's about as far as the official thumb goes.

The new Lenovo, a profit-making entity, is a joint venture with IBM's former Personal Computing Division. IBM retains an 18 percent interest in the new company, and it would be big news to Big Blue if it were to learn that its investment isn't supposed to pay off. Meanwhile, Lenovo's headquarters recently moved from Purchase, N.Y., to Raleigh, N.C., both locations resting firmly on American soil.

And of Lenovo's more than 20,000 employees, 10 percent work in the United States (and pay taxes there,) 65 percent work in China, and 25 percent work in 62 other countries around the world. The high proportion of Chinese employees reflects the location of its manufacturing, but Lenovo is a truly international company, illustrated by the fact that the majority of the company's revenue comes from outside China.

But beyond all that, the congressman's accusations are grossly unfair on a number of levels.

• Almost any PC you can name has Chinese content. Intel, which supplies the brains for most personal computers, has factories in China. Seagate, the largest hard drive supplier, produces in China. Dell, the largest PC hardware OEM (original equipment manufacturer), builds in China. Of Hewlett-Packard's notebooks, 98 percent are made in China.

Interlinking countries through business dependencies is a good way to build mutual interests and therefore reduce the potential for hostilities.

Of all the world's notebooks, 80 percent are actually manufactured in China, whether they're partially assembled, as in Dell's case, made by a contract manufacturer like Quanta and sold under a brand like Gateway, or produced in company-owned plants, as in Lenovo's case. In fact, Chinese manufacturing is so efficient these days that even most Japanese notebook vendors now make their products in China.

• Clients--the desktops and notebooks that Lenovo sells--are not sensitive in the same way servers might be. A client is a client is a client in the computer world. They are largely a commodity. In fact, the vendors strive to differentiate their products on the basis of such factors as weight, color, surface texture and case design precisely because they are all so similar.

• That similarity is the result of the fact that the intellectual property in PC clients is largely owned by a small group of companies. Most of the important inner workings of a PC comes from either Microsoft, which supplies the operating system, or one of two silicon vendors, Intel and Advanced Micro Devices, which supply the microprocessor, core logic and some of the other chips that run the machines. Most of the companies that make PC guts--Intel, Microsoft, AMD, Nvidia, Seagate, to name a few--are American, but it should be noted that those that produce physical products (as opposed to software) manufacture a large percentage of their content in--you guessed it--China.

The good congressman should know that interlinking countries through business dependencies is a good way to build mutual interests and therefore reduce the potential for hostilities. Calling into question the motives of a business partner sows mutual distrust--not a good way to build long-term relations. In case Manzullo hasn't figured it out yet, China is here to stay. Promoting policies that help nurture this relationship is a better use of energy than backing those that expose his ignorance of marketplace realities by bashing a worthy international company with substantial U.S. assets, not to mention U.S. payroll.

The best argument that critics have been able to come up with for not letting Lenovo supply the State Department is that it would be easier for Lenovo than for an "American" company to insert a keystroke logger--a program that records keystrokes--if the vendor knew that the final buyer is involved in intelligence activities. But as should be clear by now, so many computers are made in China that it would be hard to distinguish one from the other.

Biography
Roger L. Kay is president of Endpoint Technologies Associates.

More Perspectives

[msievers]

More government control in Lenovo

Since the Chinese Government does own part of the company, they have the ability to exert control over the computers that they don't have over other PC manufacturers.

[msievers]

Wish we had "edit" feature

Anyway, I meant that the Chinese Government has an ability to exert more control over computers created by Lenovo than any other PC manufacturer. The chinese government cant just waltz right into a Dell plant and say "We want this on all these computers," and expect Dell not to say something. They probably can reasonably expect that from Lenovo.

[nhandler]

Xenophobia...

The simple fact that the government owns a large stake in the company has no bearing on whether it will be capable of producing a good product.

I agree with the Roger Kay, it is stupidly xenophobic to refrain from purchasing Lenovo laptops. Just about all the world's laptops are produced in China, if the US government wants a 'Made in the USA' tag they are going to have to switch to a mercantile economic policy.

US Senate = ignorant xenophobics

Is something new?

[msievers]

NATIONAL SECURITY =/= XENOPHOBIA

NATIONAL SECURITY IS NOT XENOPHOBIA OMGZ!

It's not wether they are capable of producing a good product (which, by the way, the new lenovo thinkpads are horrible) it's their ability to install software or hardware that monitors the what is done on the computer without any knowledge of the US Government.

[Robobug]

American future on the line

When Bill Clinton was promoting Most Favored Nation status for China, one of the benefits touted was American sales of computers to China giving Americans more jobs. That was a joke that was not funny.

China will sooner than later invade the renegade province of Taiwan and take control of the manufacturing of 70 percent of the planet's microchips in the process. Many American defense related electronics originates from Taiwan. That is not a joke. Thanks to Bush's adventure in Iraq, the US will not be able to do anything about that.

Computer science enrollment in American universities is falling. Could it be that so much entry level type work has been farmed out to India that students are looking for careers elsewhere? Or what about H1B visa imported workers while so many American IT people are still looking for employment? Within 15 years, there will no longer be any software expertise left in the US.

Yes, I am proud to be a 'xenophobic'. If you believe so strongly in Chinese computers, then please emigrate there.

[Lance Roy]

A critique of your response

Hello, Bogie Bog, just wanted to reply to some of the items you stated:

When Bill Clinton was promoting Most Favored Nation status for China, one of the benefits touted was American sales of computers to China giving Americans more jobs.

Please send me link for the above; I remember other reasons for MFN status, which I discuss below.

China will sooner than later invade the renegade province of Taiwan and take control of the manufacturing of 70 percent of the planet's microchips in the process.

China will not invade. Taiwanese businessmen, along with the US, have invested heavily in China. China's economy is also based on export-led industrialization. This is the main benefit of MFN status: a more complacent, and internationally more contructive, China. China would not disrupt their current prosperity. China also holds a lot of US debt, in dollars. A war of this type would cause the dollar to fall, devastating the world economy. China is no longer an isolated pariah, largely thanks to people like Clinton.

Many American defense related electronics originates from Taiwan. That is not a joke. Thanks to Bush's adventure in Iraq, the US will not be able to do anything about that.

This is not a threat. These electronics are produced in China, Korea, all over the world. What is important is the software, as well as how these things are put together. Additionally, the US's means to prevent an invasion of Taiwan is naval; we would not use ground troops. China's ability to invade Taiwan is very limited; Taiwan's military is one of the largest and most modern in the world. China's nuclear ability is also useless in this case.

Computer science enrollment in American universities is falling. Could it be that so much entry level type work has been farmed out to India that students are looking for careers elsewhere?

You could have a point here. My question would be: is enrollment falling because fewer international students are enrolling, or fewer US students? Also, is enrolment falling as a percent of total college enrollment, or in absolute numbers?

Or what about H1B visa imported workers while so many American IT people are still looking for employment?

No. Most workers are employed in menial jobs. Those employed in computers are employed because the demand is so large that US companies are loooking elsewhere.

Within 15 years, there will no longer be any software expertise left in the US.

This statement hurts your credibility.

Yes, I am proud to be a 'xenophobic'. If you believe so strongly in Chinese computers, then please emigrate there.

Why are you proud to be Xenophobic? Think of your argument taken to extremes: what state do you live in? How about putting borders around all the states, with accompanying trade barriers. What would happen? You'd have all these mini industries everywhere, with little efficiency. High prices, low wages, low sales, and shortages of many items. Also, if you're asking people to migrate to China, most likely those that migrate would be the best educated, thus creating a brain drain from the US to abraod. Does this make sense?

[tlite722]

perhaps you are a bit off...

while i don't know his true mental state or his motives for such a request for review of the state dept's purchase, it is wholly and completely logical and rational, in my opinion. our government, whether federal, state, or local is directly funded by its citizens and therefore, when at all possible, our money should go to support american businesses. if we are placed at a disadvantage by buying american then i do support buying the best available regardless of product origin but as you assert in your piece, a client is a client is a client so why not buy a Dell or HP or Gateway? yes, in a global economy, one would be hard pressed to find a product without international connections but i'd rather have the profits from government purchases stay in america than in a foreign company. this is why you see law enforcement in crown vics, air force 1 a boeing, etc. if you are a private business, spend where you want. if you are using public funds and it doesn't put you at a disadvantage, keep the profits at home.

The true story here

Congressman Manzullo is about as much a xenophobe as Tom Freidman. In fact, he is an ardent free trader and runs the US-China Interparliamentary Exchange (as Chairman) since 1999. As such, he is one of the most knowledgeable China hands on Capitol Hill.

The reason he made this inquiry (and I stress it is simply an inquiry), is because of his concern that Lenovo may be recieving Chinese government subsidies thast violate the WTO. The Chinese agreed to disclose these subsidies years ago, but to date have refused to honor their WTO commitments and provide them to the USG.

The Congressman has a constitutional obligation to undertake oversight responsibilities of this nature. He is a vigorous champion for US manufacturing and is very concerned about the loss of US competitiveness occuring as the result of unfair and illegal trading practices. He is fully aware of the global nature of the OEM supply chain. His district has been slammed by a huge loss in manufacturing jobs over the last 5 years, at least some of which is due to certain trade practices by our trading partners, such as China.

I would suggest that the term "xenophobe" has become the "new racism" allegation. It is used liberally by those who have an agenda to stifle debate and deflect scrutiny because they have some stake in maintaining a status quo, whether or not that status quo is truly in the interests of the US. Anyone who wants the TRUE FACTS about this situation should call Rich Carter in the Congressman's offices. What about it, Mr. Kay?

[gerhard_schroeder]

Roger Kay - ad hominem fringe man himself

This Roger Kay guy is sounding much more unstable and crazed than the rep from Illinois.

Hey Roger, where were your "lunatic" comments when the Dubai ports deal was being inspected for security risk? What's the matter? You only stand up for communist chinese and not capitalist arab monarchs?

Anytime our government sources high-tech items from abroad, it just makes sense to inspect them for possible espionage.

After all, we bugged a Boeing 747 that was to be delivered to the Chinese Communist Party leaders. To pretend like they don't attempt the same thing is, well, characteristic of liberals to say the least.

Crawl back under your rock now....

[drudixon]

Comments are utterly ridiculous

I have to say, I'm sorely disappointed in the utter lack of IT knowledge demonstrated by the folks commenting on this story. Likewise, all of the Tom Clancy conspiracy theory brainstorming is likewise ignorant and shameful.

1st point, the classified network that connects all classified computers together, is not connected to the outside world. When a Lenovo, or Dell PC is on it, it can't communicate to any PC outside of it. For non-class' networks containing "sensitive" material, there are DISA, mandated security protocols for firewalls, packet monitoring, and other traffic monitoring to catch "random packets" from exiting the system. Additionally, most every Government Agency uses it's own software load, meaning they delete the software that comes on the system, and start over, reloading the OS with their own settings, own programs, etc. Any code the evil Chinese would surreptitiously plant on the system would be long gone with no opportunity to dispel US secrets. So, that would leave us with the "secret planted chip" that would mysteriously communicate with China. The only way it could since it can't use networks would be through RF. Since all PCs entering a SCIF are scanned for RF leakage on entry into the SCIF, no PCs secretly radioing information would be allowed in. Additional RF shielding is around many SCIFs as well, preventing any RF signal from exiting.

Now that we have dispelled the IT flaws in the arguments of those commenting in rebut to this story, let's address the ignorance surrounding Government Subsidizing of Deals. I understand that the Honored Congressman may think that 16,000 Dep't State PC's is a lot, and certainly it is, but I have to then wonder if this witch hunt should involve Dell who's yearly sales of some 30,000 pcs to the Army, 24,000 to SSA, or any of these other at sub-materials cost should also be examined. Materials cost is the cost of all components purchase price added together. The industry is built on fairly standard rates for commodities (processor, motherboard, memory, harddrive, etc.). That said, it's fairly easy knowing volume sales of a company to derive the costs those companies pay for an item. So, when SSA buys a $300 desktop that has a mainstream configuration, that system is approximately $200 below materials cost. Who's subsidizing Dell's PC???? Anyway, all sales companies, whether IT or not are responsible for P+L in marketing their products to a variety of customers. While you may take a loss on a strategic deal, you have to make it up elsewhere to keep the balance sheet in the black.
Last point. Lenovo, like any company has to report to the FTC. Any subsidies would be very obvious to see.