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Cisco pained by China protectionism: Analyst


News » Technology/Innovation
Nigeria

IMAGE: Crawford del Prete, IDC chief research officer »

August.14.2014

Cisco and other big U.S. tech companies have held out China as "the" huge market of the future. But as China becomes more confrontational toward U.S. business, that perception is changing.

With Cisco reporting earnings after the bell Wednesday, analysts aren't expecting much good news when it comes to the Chinese market.

And companies like Cisco are counting on China to be a huge source of growth.

IBIS World says the Chinese information technology market will reach $111 billion this year, and that would be a 7 percent increase over last year.

Cisco tells CNBC that China accounts for less than 5 percent of Cisco's total global revenues, but that's still close to $2 billion.

And the slump in China isn't a new trend. The networking giant has seen it's business in China moving downward for the past few quarters.

Cisco executives have publicly blamed the company's disappointing results, in part, on disclosures about surveillance activities by the National Security Agency, which they say worry Chinese customers.

But the Chinese state media is also fanning the flames of concern.

It has said that Beijing should "punish the pawns" of the U.S. government, and specifically pointing to Cisco, Microsoft, Google, Yahoo and Facebook.

Analysts say it's all about promoting domestic tech companies such as Huawei, Lenovo and ZTE over foreign rivals.

"This is an opportunity for the Chinese government to say, 'Hey, we have no concerns about our own products.' And it's a way for China to promote their own indigenous products and drive those products forward," said Crawford del Prete, IDC chief research officer.

And it's not just Cisco that's in Beijing's crosshairs. IBM, Microsoft andQualcomm are also facing challenges in China.

Restricted access to the Chinese high tech hardware market has financial ramifications on big tech.

RBC Capital Markets' Mark Sue said it's not just about the loss of sales in China that is disturbing.

Sue said China is being very aggressive and protectionist, and while Cisco and other big U.S. tech companies were counting on rapid growth in China, it doesn't look like they will be able to deliver to investors any time in the near term.

Sue added that the Edward Snowden-NSA affair has had "a lingering impact on purchases, and the current environment is not conducive for vendors."

"There is a lack of trust when it comes to networking equipment that can move sensitive information back and forth," he said. "As a result, for the near term, China isn't a region that will grow meaningfully for Cisco."

Updated 3 Years ago
 

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Tags:     Cisco     Microsoft     Google     Yahoo     Facebook     Huawei     Lenovo     ZTE     Crawford del Prete     Mark Sue     Edward Snowden-NSA

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