IBM-Apple App Deal for Businesses Hits Snag as China Spurns IPad

Photographer: Tomohiro Ohsumi/Bloomberg

Apple Inc. iPads are displayed at the company's store in Beijing. Close

Apple Inc. iPads are displayed at the company's store in Beijing.

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Photographer: Tomohiro Ohsumi/Bloomberg

Apple Inc. iPads are displayed at the company's store in Beijing.

International Business Machines Corp. (IBM)’s goal to dominate the business application market through a partnership with former rival Apple Inc. (AAPL) has hit a snag where IBM has faced challenges before: China.

China’s government excluded Apple products such as iPads and iPad Minis from the list of products that can be bought with public money because of security concerns, according to government officials familiar with the matter. That means the business-software apps IBM is building for those tablets may face hurdles reaching the burgeoning Chinese corporate market.

The Chinese government has been excluding U.S. technology companies from publicly-funded purchases and reviewed reliance on foreign products as tensions escalate between the countries over claims of hacking and cyberspying. The move against Apple products could deter the potential corporate customers that IBM is counting on to expand its mobile business.

“The large businesses in China tend to buy where the government leads,” Frank Gillett, an analyst at Forrester Research Inc., said in an interview. “There’s a point of national pride here. I would expect that pattern to continue.”

Lia Davis, a spokeswoman for Armonk, New York-based IBM, declined to comment on the Chinese government’s move. Kristin Huguet, a spokeswoman for Cupertino, California-based Apple, declined to comment.

Photographer: Tomohiro Ohsumi/Bloomberg

China represents an important market for IBM’s handheld device business, especially after announcing a partnership with Apple last month to develop iPhone and iPad-centric software. Close

China represents an important market for IBM’s handheld device business, especially... Read More

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Photographer: Tomohiro Ohsumi/Bloomberg

China represents an important market for IBM’s handheld device business, especially after announcing a partnership with Apple last month to develop iPhone and iPad-centric software.

China represents an increasingly important market for IBM’s handheld device business, especially after announcing a partnership with Apple last month to develop iPhone and iPad-centric software and services to manage devices for companies. By working with a mobile device maker whose products many workers already use personally, the deal was meant to be a boost for IBM’s long-running mobile effort.

China Revenue

While smartphones aren’t on the Chinese government’s list, the state-run China Central Television last month reported that features of Apple’s iPhone software may result in the leak of state secrets. Apple rejected those claims.

For tablets in China, “the commercial market remains at a high growth rate,” IDC analyst Frank Wang said in a July 11 research note. Shipments of tablets for businesses rose 14 percent in May from a year earlier.

Apple depended on China for about 16 percent of its $37.4 billion in revenue last quarter, according to data compiled by Bloomberg. IPad sales in the world’s biggest market increased by 51 percent, Chief Executive Officer Tim Cook said July 22.

Apple is just the latest U.S. technology company to face scrutiny from the Chinese government after Edward Snowden’s revelations last year of a National Security Agency spying program and the May announcement of indictments by U.S. prosecutors of five Chinese military officers for allegedly stealing corporate secrets.

Competitors’ Technology

China’s procurement agency told departments to stop buying antivirus software from Symantec Corp. and Kaspersky Lab, while Microsoft Corp. (MSFT) was excluded from a government purchase of energy-efficient computers.

China’s government reviewed whether Chinese banks’ reliance on high-end servers from IBM compromises the nation’s financial security, people familiar with the matter said in May. Government agencies, including the People’s Bank of China and the Ministry of Finance, are asking banks to remove the IBM servers and replace them with a local brand as part of a trial program, the people said.

“There’s always been this concern if they’re depended on technology from economic and political competitors, they should be suspicious of it,” Forrester’s Gillett said. “The Snowden move definitely solidified that.”

To contact the reporter on this story: Alex Barinka in New York at abarinka2@bloomberg.net

To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net James Callan

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