Sugon banks on the cloud for expansion

Security concerns help company challenge the dominance of foreign software providers

Sugon Information Industry Co Ltd, one of the biggest beneficiaries of Beijing's tightening rules over information technology security, on Tuesday revealed an ambitious expansion plan that directly challenges the China business of multinationals such as EMC Corp, Oracle Corp and IBM Corp.

Li Jun, president of Sugon, said the Beijing-based company will help 100 Chinese cities build cloud computing centers over the next five years.

"We will work with the government to build data sharing and analytics platforms using self-made storage, server and security products," Li said. The company currently has built about 10 cloud computing centers in the country.

Most of the cloud computing projects managing government data are funded by local governments. Overseas players, because of China's increasing concerns over information safety, are finding it difficult to compete with Chinese companies in the bidding process.

Industry regulators are pushing "secure and controllable" IT standards in government procurement-related projects. Industry sources are worried that the move may sideline foreign vendors in key sectors and provide bigger room for local companies.

"Tougher rules on information security will benefit local players. Sugon will make sure it fully uses this advantage to cement its position in China," Li said. The shares of Sugon jumped by 7.97 percent after the company made the announcement on Tuesday.

Sugon provides IT products to sensitive sectors such as public security. The company is also gaining a presence in other areas including energy and banking, which China sees as "strategically important industries", according to Li.

The United States-based companies, including IBM and EMC, are top IT providers for Chinese banks currently.

Sun Dan, China head of the US hard disk maker Seagate Technology LLC, said: "It is a good time for Sugon to announce an ambitious plan like this." She said that Sugon needs to partner with other players, including overseas companies, to win bigger market share.

China is also planning to come out with an anti-terrorism law later this year. The new law will order IT providers to submit core business data such as encryption keys and source codes. Most of the local companies are OK with authorities getting access to sensitive company data while overseas enterprises are not too enthused by the same requirement.

Boosted by the government's anti-corruption moves, Chinese cities are now setting up cloud computing centers to store government data and for government spending disclosure. The facilities are also used in taxation, traffic control, mass transportation and other civilian services.

According to industry consultancy IDC, 10 percent of the total IT spending will be directly related to smart city projects by 2018.

China is one of the world's largest spenders in building IT infrastructure. The country's IT spending is on track to break $256 billion by 2018, a nearly 20 percent increase compared with 2014's amount, said IDC.

Storage, IT services and mid and high-end servers are among the top destinations for government-related investments.