Why Dell Comes Out Clean While China Blacklists Apple, Microsoft

BEIJING (TheStreet) -- U.S. computer maker Dell has found a way to beat China's rap against American tech companies over alleged security risks: pre-install a Chinese operating system on most of its machines sold in China.

Privately held Dell has thus avoided the costly consequences of a Chinese government computer security campaign that spread Wednesday to include Apple (AAPL) products. Targeted earlier were Microsoft (MSFT) and IBM  (IBM).

Allegations of data security threats prompted the central government's procurement agency to bar Apple products including iPads and MacBooks from future purchases, the Beijing News and other media reported Wednesday. The agency had no immediate comment.

In May, the government said it would stop buying computers pre-installed with Microsoft's Windows 8 operating system and told state-owned banks to phase out IBM servers. Microsoft is also the target of an ongoing anti-trust investigation by the Chinese government.

Dell has so far avoided Beijing's wrath. And the company vastly reduced the risk of future trouble last week by announcing a partnership with China Standard Software, also known as CS2C, which sells a Linux-based operating system called Kylin and lists on the Shanghai Stock Exchange. Terms were not disclosed.

Under the deal, the companies said, Kylin will be pre-installed on Dell's Latitude notebooks, OptiPlex desktops, Precision workstations and other products sold in China. The agreement may expand in the future to include Dell's Vostro computer products.

Kylin, which means "unicorn" in Chinese, and a related version called NeoKylin are operating systems developed by software engineers at the National University of Defense Technology, an institution jointly run by the Chinese government's education and defense ministries.

Chinese stock analysts in May predicted booming demand for Kylin would follow the government's ban on Microsoft 8. Shanghai shares in CS2C soared after the ban's announcement, but the stock's value since then has flattened.

Last week, the government's Xinhua news agency said the Dell-CS2C agreement would likely open doors for similar contracts with other computer makers that would switch to Kylin over Microsoft for pre-installed operating systems.

In a research report Wednesday, Tebon Securities analysts said Dell's decision to pre-install Kylin marked a turning point "from competition to cooperation" between international tech companies and China. "Foreign companies are taking the initiative to move closer to domestic software makers," the report said, opening the way for "future business opportunities."

Lin Hao, marketing chief for Dell Greater China, said the collaboration will give "Chinese users safe, easy to use and manage, strong and trustworthy end-user products.... Dell values cooperating with various partners in win-win situations."

Meanwhile, despite the Beijing black-listings, Microsoft and IBM haven't stopped trying to work with China. The government procurement office recently said it would continue buying Windows 7-related software from Microsoft, for example. And according to the CS2C website, an IBM executive recently visited company officials in Beijing to discuss future cooperation.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


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