Don’t worry Cisco, you’re not getting kicked out of China

cisco logoA lot of media reports have been flying around this past week or two predicting that US tech firms will find life increasingly difficult for them in China following the various revelations leaked by Edward Snowden.

It’s a compelling narrative and on one level makes quite a bit of sense.

If, as the PRISM whistle-blower has claimed, the NSA really is spying on foreign targets including China and Hong Kong and even allies like the EU, then the logical next step would be to assume it could be doing so with the acquiescence of US technology providers who have managed to establish a firm foothold in the country.

After all, wasn’t it US lawmakers who branded Huawei and ZTE a national security threat due to the perceived risk of the firms being forced by Beijing to modify systems to enable state-sponsored eavesdropping?

No wonder then that Chinese state-run media including the English language Global Times have called for US companies including Cisco to be replaced by domestic providers. China Daily even sourced an anonymous “industry insider” who claimed: “There is a terrible security threat in China from US-based technology companies including Cisco, Apple and Microsoft.”

There’s good reason to believe that Cisco et al won’t be overly concerned about such claims, however.

For one thing, although its kit is all over China’s network infrastructure, the market there accounts for less than 5 per cent of turnover.

Huawei is probably Cisco’s biggest Chinese competitor, especially in the telco edge router market, and has certainly been taking market share from the venerable US giant, but a rip-and-replace policy of the sort advocated in the Chinese media is simply not practical.

“I would say a few vendor replacements had considerations beyond the offerings themselves, for example for certain clients with high security sensitivity,” Gartner analyst Tina Tian told me. “But much more of it would be purely a market decision.”

As for the other US technology providers, the likes of Google Android, Microsoft and Apple between them control just about the entire mobile and desktop operating system market in China.

For that reason and the lack of strong domestic alternatives (for the time being) we’re just not going to see wholesale changes here, which could even work in Cisco’s favour, according to Tian.

“Even if China could replace all the networking equipment from foreign vendors, their data would still need to be handled by IBM, Oracle, HP, EMC, Intel and also Microsoft,” she said.

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Huawei the crouching tiger ready to bare its enterprise fangs

huawei campus shenzhenI spent the first part of the week at Huawei’s global analyst summit just across the border in sunny Shenzhen. There wasn’t an awful lot of news per se, but a good many bold financial predictions from the fast-growing firm, which is trying to manage the unheard of triple whammy of success in carrier, enterprise IT and consumer device markets.

No firm has managed to succeed in all three, but Huawei is certainly going the right way about it. The firm stands third in the worldwide smartphone market, is breathing down Ericsson’s neck in the carrier space and has big plans to grow its enterprise business. On that front we heard the firm expects 45 per cent growth this year, and a CAGR of around the same to reach $10bn in revenue by 2017.

It’s not all hunky dory at the Shenzhen headquartered vendor though. Alternate CEO and EVP Eric Xu effectively said at the event that it had given up on the US as a potential growth market. Now that’s not to say it wouldn’t like that to change in the future, but given the intractable stance of Congress on this it’s not likely. So where’s the enterprise growth to come from?

Analysts told me developing markets like Indonesia and Myanmar represent potential but not immediate revenue growth at the moment – for that it needs to tap developed regions. China still represents the major slice of the enterprise pie for Huawei and that’s all dandy, but there are mutterings that local government spending may tighten in the near future, which would be bad news for the firm.

“In enterprise, Huwaei is strong in the networking and infrastructure segment. It also has other products around unified communications, contact centre and security, but overall market share is very small outside China,” Frost & Sullivan analyst Pranabesh Nath told me.

“Like the Japanese firms of the post-world war era, it is mostly positioned as a value oriented player, but is trying to improve its products to move up the value chain.”

A potential roadblock on this journey is a perceived lack of clarity around its product lines, according to IDC’s Ian Song. He said the Fusion datacentre brand in particular has caused some confusion amongst the analyst community, which view Huawei’s enterprise message as a “work in progress”.

That said, its technology is sound, R&D spend is massive and it’s got a great base to start with its strength in the carrier space. IBM, Cisco, HP et al won’t be breaking into a sweat just yet but they’d be foolish not to see the crouching tiger hidden in plain sight.

On the device front, we heard from CMO Shao Yang about Huawei’s plans to shift 60 million smartphones this year. This won’t exactly propel it into the top two among Samsung and Apple, but it’s a pretty clear statement of intent. In this industry, brand perception is all-important, and it’s something Huawei, which didn’t really have a brand until it launched the Ascend line last year, has historically struggled in.

That said, it’s learning fast and the high-end handsets its coming out with are pretty slick, so expect a whole lot more on the marketing front this year and an increasing number of Huawei-branded devices to manage as part of your BYOD strategy.