U.S. technology companies including Cisco Systems, International Business Machines and Microsoft may face new challenges selling their goods and services in China as fallout from the U.S. spying scandal starts to take a toll.
Cisco shares tumbled 11 percent on Thursday, a day after it warned that revenue would drop 10 percent this quarter, and continue to contract through the middle of next year, in part due to a backlash in China against revelations about U.S. government surveillance programs.
"All the big U.S. IT companies are concerned," said Jim Lewis, a senior fellow with the Center for Strategic Studies in Washington, who is an expert on China and technology. "But so far Cisco is bearing the brunt of it."
Lewis said Beijing may be targeting Cisco in particular as retaliation for Washington's refusal to buy goods from China's Huawei Technologies, a telecommunications equipment maker that the United States claims is a threat to its national security because of links to the Chinese military.
The Snowden revelations provoked a storm in the Chinese media and added urgency to Beijing's efforts to use its market power to create indigenous software and hardware, analysts and businessmen say.
(Read more: UK spy chiefs emergefrom shadow to blast Snowden)
"The U.S. government isn't doing any favours for Cisco," said Evercore Partners analyst Mark McKechnie. Cisco Chief Executive John Chambers said on a conference call that Cisco and its peers face "challenging political dynamics" in China.
IBM last month reported a 22 percent drop in China revenue, leading to a 4 percent decline in its third-quarter profit. Chief Financial Officer Mark Loughridge attributed the company's problems to the "process surrounding China's development of a broad-based economic reform plan," which caused delays in purchases.
(Read more: CIA said to pay AT&T for call data)
Microsoft executives singled out China as the company's weakest performing area in the world during the September quarter in an Oct. 24 earnings call.
"The macro conditions in China, which I think are consistent with what some of the other companies have reported as well, have been challenging," said Chris Suh, Microsoft's general manager for investor relations. Company officials could not be reached for comment.
Foreign companies mistrusted
Beijing has long mistrusted foreign technology companies, and those concerns have been exacerbated since former U.S. National Security Agency contractor Edward Snowden first revealed the existence of the NSA's clandestine data mining program in June.