Apple Excluded From China's Procurement List Over 'Security Concerns'

Apple Inc. ( AAPL) has been excluded from China's procurement list due to claims of hacking and cyber spying. Even though the iPad, iPad mini, MacBook Air, and MacBook Pro were on the June list drafted by the National Development and Reform Commission, and the Ministry of Finance, the products were omitted from the list distributed in July.

The tensions are a result of Edward Snowden's announcement last year regarding the National Security Agency (NSA) spying program, and the announcement, by the US in May, regarding the prosecution of five Chinese military officials for stealing corporate secrets. China Central Television (CCTV) reported in July that some iPhone features were capable of leaking state secrets and said that iPhones collects user-location information, even when the location function is turned off, violating users' privacy rights.

The ban will definitely impact Apple's sales in the upcoming quarters. Greater China (China, Taiwan and Hong Kong) contributed 16% of Apple's revenues in its third quarter of fiscal '14 (3QFY14); the $5.9 billion revenue generated from Greater China was an increase of 28% year-over-year (YoY). Also, according to Tim Cook, iPad sales increased 51%, and Mac sales increased 39% in China, in 3Q.

Along with Apple, companies like Microsoft Corporation ( MSFT), Google Inc ( GOOGL), and Facebook Inc ( FB) have been blamed by the Chinese media for cooperating with a US surveillance program called PRISM. According to People Daily, companies like Yahoo! Inc ( YHOO), Cisco Systems Inc. ( CSCO), Microsoft, and Facebook are threatening China's cyber security and its Internet users.

Microsoft was also a victim of an anti-monopoly investigation by Chinese regulators in July, which led to seizure of computers and documents from four Microsoft offices. Microsoft's 'Windows 8' was also excluded from the government's software procurement list, making local developers happy, because it reduces competition in China.

Chinese companies have started to boost capabilities in areas that were previously dominated by US businesses. For instance, Inspur International Limited- a Chinese multinational IT company- is competing with International Business Machines Corp. ( IBM) in the server business, while Lenovo Group Limited (ADR) ( LNVGY) and Xiaomi are head-to-head with Apple's personal computers and smartphones, respectively.

Lenovo's stock price went up by 0.8% and Inspur's increased by 1.09% after the news.

Scheduled to be revised in January, the list still includes Dell, HP and Chinese company Lenovo.