Bogus Cisco Gear: Espionage or Profit?

A story that appeared in today’s edition of the New York Times addresses Operation Cisco Raider, which has led to 15 criminal cases involving counterfeit Cisco gear bought in part by military agencies, military contractors, and electric power companies in the United States.

During the two-year law-enforcement operation, 36 search warrants have been executed, resulting in the discovery of 3,500 counterfeit Cisco network components with an estimated retail value of more than $3.5 million, according to the Federal Bureau of Investigation (FBI).

Cisco, which has investigated the counterfeit networking equipment, claims that the bogus gear contained no electronic back doors or evidence of computer espionage. Cisco’s working assumption is that the counterfeiters were in business solely to make money, not to surreptitiously gather intelligence.

“We did not find any evidence of re-engineering in the manner that was described in the F.B.I. presentation,” said John Noh, a Cisco spokesman. He added that the company believed the counterfeiters were interested in copying high volume products to make a quick profit. “We know what these counterfeiters are about.”

Not everybody is so sanguine.

Several security technologists and intelligence experts contend that proven techniques exist to covertly embed information-gathering and -transmitting circuitry into computer and network hardware. What’s more, a few specialized espionage-related circuits buried within billions of components would be exceptionally difficult to detect.

Cisco is understandably anxious to have this issue recede from the headlines. If counterfeit Cisco gear were found to contain electronic back doors that transmitted confidential information to foreign governments or illicit third parties, major government and private-sector customers might show increased reluctance to buy gear that carries the reputed Cisco brand, if for no other reason than concern about receiving malicious non-Cisco knockoffs in place of the genuine articles.

In all probability, Cisco is right about the bogus routers and switches. They’re probably nothing more than replicas made by for-profit counterfeiters. Nonetheless, it will be intriguing to see whether or how this story evolves.

Does Gates Mean What He Says About Yahoo?

It’s entirely logical to react cynically and skeptically to Microsoft Chairman Bill Gates’ repeated statements that his company no longer retains an interest in pursuing Yahoo.

According to Mr. Gates, on every occasion this week when he has come into contact with the business press, Microsoft will pursue an independent Internet strategy, building and improving its own web-search and online-advertising properties as opposed to purchasing external assets. Gates says Microsoft has great engineers and can achieve market dominance over Google on its own, notwithstanding the historical record and current market realities.

Said Chairman Bill:

“We have always felt we could do very well on our own and now that’s the path we are focused on,” Gates said in an interview with The Associated Press in Jakarta on Friday.

“The standard strategy for us is to just hire great engineers and surprise people at how well we can compete, even with a company that’s got a strong lead.”

Perhaps so, but if Microsoft had been committed strategically to build its own Internet offerings, it would not have pursued the acquisition of Yahoo. So, given this apparent contradiction between Gates’ words and Ballmer’s actions, a few possible explanations present themselves.

First, we can posit that Gates and Ballmer are at cross purposes on Microsoft’s Internet strategy, with the former favoring the go-it-alone build option and the latter preferring to buy the company’s way into greater market prominence. I don’t see it happening. Gates and Ballmer could finish each other’s sentences. If they had an issue at which they were at loggerheads, they’d resolve the argument behind closed doors, not hash it out publicly.

A second scenario suggests that Microsoft has decided belatedly and sincerely that the Yahoo acquisition option is no longer a worthy objective. As such, the company’s executive leadership has chosen to put the onus back on internal development, perhaps dedicating more resources to the effort henceforth. This is entirely possible, but not as likely as the third scenario.

Finally, Gates’ words — and some ambiguous commentary along similar lines from Microsoft Chief Strategy Office Craig Mundie — are just a ruse, a misdirection, to provoke Yahoo CEO Jerry Yang and his board members, through pressure applied by increasingly anxious investors, to reconsider and come groveling back to the bargaining table. Sadly, I think this is what the Microsoft crew is trying to achieve.

Microsoft is trying to achieve this effect not just with statements from its executive heavy hitters, but also with the carefully timed disclosure that Microsoft has released potential proxy board members from their agreements to serve in the event it made a hostile bid for Yahoo.

Again, as I have made abundantly clear, I don’t think Microsoft should be pursuing Yahoo, not at the previous price and not at a moderately smaller valuation. Still, evidence suggests that Microsoft hasn’t given up on the plan.