Defense-Tech Startups Look to Anyone but China for Parts

[00:00:19] [SPEAKER_03]: Welcome to Tech News Briefing.

[00:00:21] [SPEAKER_03]: It's Monday, September 30.

[00:00:23] [SPEAKER_03]: I'm Julie Chang for The Wall Street Journal, filling in for Zoe Thomas.

[00:00:27] [SPEAKER_03]: If you own an iPhone and you updated to the latest iOS 18, you may have noticed something

[00:00:32] [SPEAKER_03]: new on your screen, a passwords app.

[00:00:35] [SPEAKER_03]: Our personal tech columnist Nicole Nguyen will tell us more about it.

[00:00:38] [SPEAKER_03]: And then, defense companies making weapons to counter Beijing have a problem.

[00:00:43] [SPEAKER_03]: They depend on China for parts.

[00:00:46] [SPEAKER_03]: Our technology and national security reporter Heather Somerville will explain the challenges

[00:00:50] [SPEAKER_03]: behind overhauling a China-dominated supply chain.

[00:01:01] [SPEAKER_03]: But first, there have been over 10,000 data breaches this year, a record high.

[00:01:07] [SPEAKER_03]: And the majority of those attacks used stolen credentials.

[00:01:10] [SPEAKER_03]: That's according to a recent Verizon analysis.

[00:01:13] [SPEAKER_03]: A password manager could help thwart some of those attacks, but according to a global survey

[00:01:17] [SPEAKER_03]: by authentication company Yubico, only about one in four people use one.

[00:01:22] [SPEAKER_03]: Now, as part of the latest iPhone, iPad and Mac software update, Apple has included a

[00:01:28] [SPEAKER_03]: free password manager that suggests unique, unguessable passwords, plus a feature that

[00:01:33] [SPEAKER_03]: lets you securely share passwords with any contacts, as long as they're Apple users,

[00:01:37] [SPEAKER_03]: of course.

[00:01:38] [SPEAKER_03]: Here to tell us more is our personal tech columnist, Nicole Nguyen.

[00:01:42] [SPEAKER_03]: Nicole, Apple devices have saved my logins for years.

[00:01:46] [SPEAKER_03]: So how does this new passwords app differ?

[00:01:49] [SPEAKER_00]: You're right.

[00:01:49] [SPEAKER_00]: And it's pretty confusing that they now have a standalone passwords manager, but the previous

[00:01:54] [SPEAKER_00]: system worked quietly in the background.

[00:01:57] [SPEAKER_00]: So quietly that if you wanted to find a password, a Wi-Fi network that you have logged in for,

[00:02:02] [SPEAKER_00]: for example, it was impossible.

[00:02:04] [SPEAKER_00]: You had to go through multiple settings menus.

[00:02:07] [SPEAKER_00]: Now Apple is collecting all of your login info, not just passwords, but this new fingal

[00:02:14] [SPEAKER_00]: tech called passkeys, two factor codes, security warnings, Wi-Fi passwords into one easy to

[00:02:21] [SPEAKER_00]: find place called Passwords, which is a new app available on Mac, iPad and iPhone.

[00:02:28] [SPEAKER_00]: And how does Apple's app differ from other password managers out there?

[00:02:33] [SPEAKER_00]: The main difference between Apple's passwords app and other options is not only that it's

[00:02:39] [SPEAKER_00]: the default and built into Apple devices, but it's also free.

[00:02:43] [SPEAKER_00]: A lot of other options are paid and even the ones that are not paid typically offer more

[00:02:49] [SPEAKER_00]: cross compatibility like most Apple products.

[00:02:51] [SPEAKER_00]: Apple's passwords works best in Safari or on apps on Apple devices.

[00:02:58] [SPEAKER_00]: Are there any cons to using Apple's passwords app?

[00:03:01] [SPEAKER_00]: Yes.

[00:03:02] [SPEAKER_00]: Two big ones is that it's not completely cross platform functional and a password manager

[00:03:07] [SPEAKER_00]: should really work wherever you are.

[00:03:10] [SPEAKER_00]: So that means your work computer, your personal computer, any other device.

[00:03:14] [SPEAKER_00]: If you use Android, if you share passwords with someone who has an Android device or

[00:03:20] [SPEAKER_00]: use Firefox, for example, passwords won't work for you and you should really use a third

[00:03:24] [SPEAKER_00]: party alternative.

[00:03:25] [SPEAKER_00]: Another con is that the passwords app doesn't let you set a unique master password.

[00:03:31] [SPEAKER_00]: It's protected by your device unlock passcode.

[00:03:34] [SPEAKER_00]: And so it's not great that it's using a redundant passcode that you already use for

[00:03:38] [SPEAKER_00]: your device.

[00:03:40] [SPEAKER_00]: And most third party apps do let you set a separate master password.

[00:03:46] [SPEAKER_03]: And do we know why Apple decided to make this a standalone app?

[00:03:50] [SPEAKER_00]: I can presume which is that Google has its own version for Android and Chrome users

[00:03:56] [SPEAKER_00]: called Google Password Manager that actually works on iOS too.

[00:03:59] [SPEAKER_00]: But listen, passwords are the biggest problem for personal cybersecurity reasons.

[00:04:08] [SPEAKER_00]: Among the many, many cyber attacks that took place this year, stolen credentials was the

[00:04:13] [SPEAKER_00]: majority attack vector for those hacks.

[00:04:17] [SPEAKER_00]: The average person has something like 250 passwords between their work and personal

[00:04:22] [SPEAKER_00]: accounts, and that would be impossible to remember.

[00:04:25] [SPEAKER_00]: And so we tend to just use 123123 because it's easy to remember and we can use it everywhere.

[00:04:32] [SPEAKER_00]: The problem is hackers are very clever and they can not only guess and compute easily

[00:04:39] [SPEAKER_00]: guessable passwords, but they rely on previous data breaches and hope that people have reused

[00:04:45] [SPEAKER_00]: passwords.

[00:04:46] [SPEAKER_03]: That was WSJ personal tech columnist Nicole Nguyen.

[00:04:50] [SPEAKER_03]: Coming up, weapons makers rely on China for parts to make drones, ships, missiles and

[00:04:55] [SPEAKER_03]: more.

[00:04:56] [SPEAKER_03]: Washington is saying no more.

[00:04:58] [SPEAKER_03]: How are companies responding?

[00:05:00] [SPEAKER_03]: We'll get into that after the break.

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[00:05:43] [SPEAKER_03]: US defense companies rely heavily on China for parts.

[00:05:49] [SPEAKER_03]: That's because Chinese parts are often cheaper, they work better, sometimes they're the only

[00:05:53] [SPEAKER_03]: option for particular pieces.

[00:05:55] [SPEAKER_03]: But as geopolitical tensions between the two countries grow, companies are learning to

[00:05:59] [SPEAKER_03]: build high-tech weapons without materials from Beijing.

[00:06:02] [SPEAKER_03]: Our technology and national security reporter Heather Somerville has been following the

[00:06:06] [SPEAKER_03]: story and she's with me now.

[00:06:08] [SPEAKER_03]: Heather, I mentioned geopolitical tensions, but what are some of the main reasons that

[00:06:13] [SPEAKER_03]: US defense companies are now having to wean themselves off Chinese parts?

[00:06:17] [SPEAKER_02]: There are a number of reasons, national security reasons, economic reasons, that Washington

[00:06:23] [SPEAKER_02]: no longer wants the United States to be so dependent on China for the stuff that we need.

[00:06:29] [SPEAKER_02]: This goes well beyond defense components, of course.

[00:06:32] [SPEAKER_02]: And there's been a number of new laws and new regulations as well as policies proposed

[00:06:37] [SPEAKER_02]: by lawmakers that are aimed at limiting the Chinese components that defense companies

[00:06:44] [SPEAKER_02]: can use.

[00:06:45] [SPEAKER_02]: Because the idea is if we go to war, if we go to war, especially with China, China will

[00:06:50] [SPEAKER_02]: have all the stuff that we will need to build weapons systems.

[00:06:53] [SPEAKER_02]: That doesn't work.

[00:06:54] [SPEAKER_02]: So there's a push from regulators, there's a push from Congress on these defense companies

[00:07:00] [SPEAKER_02]: to figure out a different way to build the weapons systems that they're building, to

[00:07:05] [SPEAKER_02]: find different suppliers, and to hurry up and do it quickly.

[00:07:08] [SPEAKER_02]: And to make all those changes, how tough is it to really do that?

[00:07:13] [SPEAKER_02]: It's incredibly difficult.

[00:07:14] [SPEAKER_02]: So if you look at the so-called primes, those would be the established defense contractors

[00:07:20] [SPEAKER_02]: that we know by name, Lockheed Martin, they have thousands of suppliers in China.

[00:07:26] [SPEAKER_02]: It is a relationship that is hard to imagine decoupling.

[00:07:31] [SPEAKER_02]: They have an enormous challenge ahead of them.

[00:07:33] [SPEAKER_02]: Now, I talked to startups.

[00:07:35] [SPEAKER_02]: So these are early stage companies, often with just a small number of employees that

[00:07:40] [SPEAKER_02]: are building their systems from the ground up today.

[00:07:45] [SPEAKER_02]: And so they have both the challenge and the opportunity to build without Chinese components

[00:07:49] [SPEAKER_02]: from the start.

[00:07:50] [SPEAKER_02]: And that's what a lot of these companies are doing.

[00:07:52] [SPEAKER_02]: They're finding really ingenious ways to source critical materials from other parts

[00:07:58] [SPEAKER_02]: of the world or in some places to figure out how to build it in-house.

[00:08:02] [SPEAKER_02]: The challenge for these startup companies, they do not have the resources that a Lockheed

[00:08:07] [SPEAKER_02]: Martin has.

[00:08:08] [SPEAKER_02]: They don't have the money.

[00:08:09] [SPEAKER_02]: They don't have the geopolitical savvy.

[00:08:11] [SPEAKER_02]: Another challenge for these companies, Julie, is, well, both the US as well as China are

[00:08:17] [SPEAKER_02]: limiting what Chinese components US companies can use if they want to sell to the defense

[00:08:24] [SPEAKER_02]: department.

[00:08:26] [SPEAKER_02]: And so the options that companies have are getting fewer and fewer.

[00:08:29] [SPEAKER_02]: At the same time, there is a lack of government investment in trying to support the production

[00:08:36] [SPEAKER_02]: of replacement components in the United States.

[00:08:40] [SPEAKER_02]: That is a lament I heard from a lot of founders.

[00:08:43] [SPEAKER_02]: For instance, I spoke to the founder of this company called Land Energy out in Cleveland,

[00:08:48] [SPEAKER_02]: and he is building batteries and electric motorcycles that he's trying to sell to the

[00:08:53] [SPEAKER_02]: defense department.

[00:08:54] [SPEAKER_02]: And he's got one factory up and running in Cleveland, and he needs money for another

[00:08:59] [SPEAKER_02]: factory.

[00:09:00] [SPEAKER_02]: He said he can't get that anywhere.

[00:09:02] [SPEAKER_02]: He can't get any debt.

[00:09:03] [SPEAKER_02]: He can't get any government funding.

[00:09:05] [SPEAKER_02]: He can't get any financial help.

[00:09:06] [SPEAKER_02]: So he is in the process right now of looking to expand his manufacturing in the Philippines

[00:09:12] [SPEAKER_02]: where he has found money, where he has found an opportunity to be able to afford to expand

[00:09:17] [SPEAKER_02]: that.

[00:09:17] [SPEAKER_02]: So he's building interesting products for the defense department.

[00:09:21] [SPEAKER_02]: He's trying to use non-Chinese materials, but he's not able to do it in a way that

[00:09:28] [SPEAKER_02]: is really building in the United States and building up the American defense industrial

[00:09:33] [SPEAKER_02]: base.

[00:09:33] [SPEAKER_02]: And that is a problem that was flagged again and again.

[00:09:36] [SPEAKER_03]: Are the companies moving fast enough to replace the China-made parts in their products?

[00:09:41] [SPEAKER_02]: It really is on a case-by-case basis.

[00:09:43] [SPEAKER_02]: You know, I spoke to companies who found alternatives to sensors, to radios that have

[00:09:48] [SPEAKER_02]: previously been sourced from China, components for batteries, rare earth materials, the stuff

[00:09:54] [SPEAKER_02]: that you need for motors.

[00:09:56] [SPEAKER_02]: Magnets is something that's necessary for propulsion motors, which are in like everything,

[00:10:01] [SPEAKER_02]: basically, satellites, drones, ships.

[00:10:03] [SPEAKER_02]: China very much has a stronghold on that.

[00:10:05] [SPEAKER_02]: And companies are bracing for regulations that will prevent them from sourcing motors

[00:10:13] [SPEAKER_02]: and additional components from China where there are no viable alternatives.

[00:10:18] [SPEAKER_02]: So there is a scramble right now to build up a domestic supply chain, for instance, new

[00:10:24] [SPEAKER_02]: U.S. magnet suppliers.

[00:10:27] [SPEAKER_02]: Like we don't have those in any real quantity.

[00:10:29] [SPEAKER_02]: There's new magnet factories being set up to try to provide that material that is necessary

[00:10:35] [SPEAKER_02]: for the motors in all of these drones and other systems.

[00:10:39] [SPEAKER_02]: It's underway.

[00:10:40] [SPEAKER_02]: It will take years to actually get there and a lot of investment from the private sector,

[00:10:46] [SPEAKER_02]: as well as from the government.

[00:10:49] [SPEAKER_03]: So then zooming out, what kind of impact will this have in the defense sector overall?

[00:10:54] [SPEAKER_02]: It is remaking the defense sector.

[00:10:56] [SPEAKER_02]: It is a new dawn for the defense sector.

[00:10:59] [SPEAKER_02]: China is a crucial supplier for all of the critical technologies, for the critical components

[00:11:06] [SPEAKER_02]: to make all the systems that the U.S. military needs.

[00:11:10] [SPEAKER_02]: That's where we are today.

[00:11:13] [SPEAKER_02]: And that needs to be unwound very quickly.

[00:11:15] [SPEAKER_02]: So we are talking about a dramatic overhaul of the entire defense industrial base.

[00:11:21] [SPEAKER_02]: For startups specifically, these younger scrappier companies that are finding creative ways

[00:11:26] [SPEAKER_02]: to tackle this, it's an interesting business opportunity, but it is another challenge to

[00:11:33] [SPEAKER_02]: a sector that faces enormous challenges already.

[00:11:36] [SPEAKER_02]: These defense startups have raised an enormous amount of venture capital.

[00:11:40] [SPEAKER_02]: So it's crunch time, really, for these startups to start to make money from the defense department

[00:11:46] [SPEAKER_02]: and start to prove that they are worth all the investment that they have raised.

[00:11:52] [SPEAKER_03]: That was WSJ technology and national security reporter Heather Somerville.

[00:11:57] [SPEAKER_03]: And that's it for Tech News Briefing.

[00:11:59] [SPEAKER_03]: Today's show was produced by Trina Menino with supervising producer Catherine Millsop.

[00:12:04] [SPEAKER_03]: I'm Julie Chang for The Wall Street Journal.

[00:12:06] [SPEAKER_03]: We'll be back this afternoon with TNB Tech Minute.

[00:12:09] [SPEAKER_03]: Thanks for listening.

[00:12:41] [SPEAKER_01]: Take a free test drive of OCI at oracle.com slash wallstreet oracle.com slash wallstreet.