How will US data companies suffer in the wake of the Snowden leaks?

By Ben Levine for Kapitall.

Just over a year ago, the Edward Snowden leaked classified NSA documents detailing the agency’s PRISM program, which tapped directly into data of several American companies.

In its data collecting, PRISM targeted Verizon ( VZ), Microsoft ( MSFT), Yahoo! ( YHOO), Google ( GOOGL), PalTalk, YouTube (owned by Google), AOL ( AOL), Skype (owned by EBAY), and Apple ( AAPL).

In the time since, American tech companies have had growing fears that their lack of data security would besmirch their image abroad. And, not surprisingly, it turns out they were right to feel this way. 

According to a recent report from the New America Foundation, there is indeed a growing perception abroad that US-based cloud storage is unsafe—such a prevalent perception, in fact, that the report predicts that PRISM will “cost the cloud computing industry from $22 to $180 billion over the next three years.” It details how, according to a survey in January, 25% of surveyed British and Canadian businesses were pulling their data out of the United States. Susceptible American storage services include Amazon Web Services ( AMZN), Dropbox and Microsoft’s Azure. Even more alarming, many such companies were eager to move their data elsewhere, even if it meant poorer performance.

The United States hosts the Goliaths of global cloud computing, and overseas companies that have been chomping at the bit to gain a chunk of cloud computing market share see this distrust as a marketing opportunity. Some of these foreign storage providers, like F-Secure—whose services are now being offered by companies like AT&T ( T) and British Telecommunications ( BT)—are touting the privacy of their storage. Companies like F-Secure have their data centers in the EU, where privacy laws aren’t as lax as in the US. 

To try to level the playing field, the European Commission is developing a public cloud infrastructure for public and private use for the region. What’s more, big Chinese companies like Chinanet ( CNET), Shanda ( GAME), Kingsoft (OTCMKTS: KSFTF), Alibaba (will have its US IPO in 2014) and Huawei are investing in locally based cloud technology as well.

According to the New America report, several US-based tech companies, including Qualcomm ( QCOM), IBM ( IBM), Hewlett-Packard ( HPQ) and Microsoft have reported a decline in sales in China in the time since the leaks. The German government is reportedly severing its contracts with Verizon because of their cooperation with the NSA, and in December Brazil gave a $4.5 billion contract to Saab (OTCMKTS:SAABF) over Boeing ( BA), with the NSA taking the blame. The issue reaches down to smaller businesses as well, like Servint, a webhosting company that “reported in June 2014 that international clients have declined by as much as half … since the leaks began.” 

In the US, the future data security looks somewhat promising in light of new senate legislation that would better regulate bulk data collection by the NSA, although many feel the reform bill is only a first step toward security. While proponents of the bill hope that it will help restore trust in the Internet in the US, it would likely take some time to restore international confidence in US-based services.

Will greater proportions of the data market pull out of the US and take their business overseas? How well will US companies withstand losses? Take a look at the tools below to begin your analysis, and let us know what you think in the comments.

Click on the interactive chart to view data over time. 

 

 

1. Verizon Communications Inc. ( VZ): Provides communication services. Market cap at $132.54B, most recent closing price at $46.23.

 

 

2. Microsoft Corporation ( MSFT): Develops, licenses, and supports a range of software products and services for various computing devices worldwide. Market cap at $313.81B, most recent closing price at $37.69.

 

 

3. Yahoo! Inc. ( YHOO): Operates as a digital media company that delivers personalized digital content and experiences, across devices and worldwide. Market cap at $36.8B, most recent closing price at $36.60.
 

 

 

4. Google Inc. ( GOOGL): Is the world's most popular search engine. Market cap at $401.6B, most recent closing price at $595.44.
 

 

 

5. AOL, Inc. ( AOL): Operates as a Web services company that offers a suite of brands and offerings for the worldwide audience. Market cap at $3.45B, most recent closing price at $43.70.

 

 

6. eBay Inc. ( EBAY): Provides online marketplaces for the sale of goods and services, as well as other online commerce, platforms, and online payment solutions to individuals and businesses in the United States and internationally. Market cap at $72.74B, most recent closing price at $56.30.

 

 

7. Apple Inc. ( AAPL): Designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. Market cap at $472.72B, most recent closing price at $527.55.

 

 

8. Amazon.com Inc. ( AMZN): Operates as an online retailer in North America and internationally. Market cap at $161.82B, most recent closing price at $351.78.

 

 

9. Boeing Co. ( BA): Engages in the design, development, manufacture, sale, and support of commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide. Market cap at $97.88B, most recent closing price at $129.59.

 

 

10. QUALCOMM Incorporated ( QCOM): Engages in the development, design, manufacture, and marketing of digital wireless telecommunications products and services. Market cap at $127.33B, most recent closing price at $75.43.

 

 

11. International Business Machines Corp. ( IBM): Provides information technology (IT) products and services worldwide. Market cap at $196.75B, most recent closing price at $183.45.

 

 

12. Hewlett-Packard Company ( HPQ): Hewlett-Packard Company offers various products, technologies, software, solutions, and services to individual consumers and small- and medium-sized businesses (SMBs), as well as to the government, health, and education sectors worldwide. Market cap at $57.06B, most recent closing price at $29.92.

 

 

13. AT&T, Inc. ( T): Provides telecommunication services to consumers, businesses, and other service providers worldwide. Market cap at $171.02B, most recent closing price at $32.47.

 

 

14. BT Group plc ( BT): Provides communications solutions and services worldwide. Market cap at $53.86B, most recent closing price at $68.83.

 

 

15. Shanda Games Limited ( GAME): Engages in the development and operation of online games in the People's Republic of China. Market cap at $1.78B, most recent closing price at $6.66.

 

 

(List compiled by Ben Levine. Analyst ratings sourced from Zacks Investment Research, all other data sourced from Finviz.)

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.

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