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Friday, April 27, 2012

Cisco Said To Be Feeling Competitive Heat From Huawei

Cisco Systems may be feeling some heat from Huawei Technologies.



San Jose, Calif.-based Cisco, the world's No. 1 maker of networking gear, faces increasing competitive pressure from China-based Huawei, which is No. 2 worldwide. Huawei is expanding from focusing on telecom customers to targeting other types of enterprise customers, including financial institutions and health care organizations in North America and elsewhere. These are among Cisco's bread-and-butter markets.


A tip-off that Cisco Systems (CSCO) is growing wary of Huawei came this month when Cisco CEO John Chambers reportedly said Huawei doesn't always "play by the rules" in areas such as computer security and intellectual property protection.


Chambers said this at "Viewpoints West," an event hosted by the Wall Street Journal, which reported the comments.


Other Western-based companies have questioned the tactics used by Huawei over the years, but Chambers' comments indicate Cisco sees something growing in its rearview mirror, says Andre Kindness, an analyst for market tracker Forrester Research.


"They have been recognizing that the red tide is coming," Kindness said. "Huawei is ready to play in the worldwide market."


Huawei now has operations in Boston; San Diego; Plano, Texas; Bridgewater, N.J.; and, as of a year ago, a research and development facility in Santa Clara, Calif., just 10 miles or so from Cisco's headquarters. So, Cisco is wary, says Adrian Drury, an analyst for research firm Ovum.


"Absolutely, Cisco sees Huawei in its backyard more and more," Drury said. "As a consequence, what we're seeing now is saber rattling between the two organizations."


Cisco declined to elaborate on its CEO's comment.


Huawei has a history of ruffling some industry feathers. Started in 1987 and long rumored to have close ties to China's military, over the years news reports have detailed alleged offenses by Huawei, ranging from copyright infringement to providing loans to clients in order to get their business.

In 2003, Cisco sued Huawei for patent infringement for allegedly copying the company's source code. Cisco dropped the suit after the two sides reached an out-of-court settlement.


Still, Chambers' comments seemed to come out of left field, says Shaw Wu, an analyst for Sterne Agee & Leach.

Comments 'Surprising'


"Five or 10 years ago there were issues with intellectual property, but since then their (Huawei's) stance has changed," Wu said. "Frankly, I found the (Chambers) comments somewhat surprising."


Analysts say Huawei has jumped to No. 1 in sales of networking gear to telecom firms, ahead of Cisco, Ericsson (ERIC), Alcatel-Lucent (ALU) and Nokia Siemens Networks, a joint venture of Nokia (NOK) and Siemens (SI).

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