Thursday, June 8

Cisco China sales vulnerable as media urge domestic shift


BEIJING: Cisco Systems Inc (Cisco) faces a backlash in China, where it generates about US$2 billion in annual sales, after state-run media said the company poses a security threat and urged a shift toward domestic suppliers.

While Cisco has said it didn’t participate in US surveillance programmes revealed earlier this month by former government contractor Edward Snowden, state-owned Chinese media outlets are calling for the company to face restrictions there.

China should develop its own Internet technology, the Global Times newspaper wrote in an editorial this week, alleging that the US can “attack China almost at will”.

US companies, including Cisco, represent a “terrible security threat,” China Daily reported, citing an industry source it didn’t identify. Shenzhen-based Huawei Technologies Co is poised to benefit from any clients seeking Cisco alternatives.

“Huawei will take this and run with it, to leverage its position with customers in its home turf,” said Ray Mota, founder of ACG Research, a networking-equipment industry consulting firm.

The media attacks add to Cisco’s challenges in the world’s second-largest economy, where the company has been losing share to local competitors, including ZTE Corp.

Even as the Chinese market for switches and routers surged 20 per cent to US$2.58 billion last year from 2010, Cisco’s market share fell to 18 per cent from 21 per cent, according to Infonetics Research Inc.

While Huawei also lost ground, its 2012 share was more than double Cisco’s, while ZTE’s share climbed to 29 per cent from 18 per cent over the two-year period.

Cisco has suffered in China over the past year as the US has blocked wireless carriers from using Chinese-made equipment to build mobile networks, citing security concerns.

President Barack Obama signed into law a spending bill in March that prohibits federal agencies from buying IT systems from Chinese companies without approval from the Federal Bureau of Investigation or other federal cyber-espionage investigators.

“We also continue to see challenges in China,” Cisco chief executive officer John Chambers said on a May 15 conference call.

“We do believe we are making progress, although we expect these challenges in China to last for several more quarters.”

Even so, China accounts for less than five per cent of Cisco’s revenue and profit, according to John Earnhardt, a spokesman for the San Jose, California-based company.

He also denied any involvement in the US surveillance initiatives, outlined in articles in the Guardian and Washington Post this month. — Bloomberg