Cisco’s Chambers Identifies Huawei As Main Threat

Cisco Systems is facing an increasing array of competition in the networking space, thanks to the likes of Hewlett-Packard, Juniper Networks, Avaya and Arista Networks.

But the competitor that apparently is most on the mind of CEO John Chambers is Huawei Technologies.

Rule Breaker?

In an interview with The Wall Street Journal, Chambers said that the giant Chinese telecommunications company, which last year made a strong push into the US market, with hopes of grabbing some of Cisco’s leading market share, was a formidable competitor, and one that doesn’t “always play by the rules.”

Chambers’ comments came 6 April during a Journal-sponsored event in California, and in response to questions from reporters. He didn’t elaborate on what rules Huawei had broken. Chambers suggested the issues were around intellectual property.

“When you look at companies, one of the things you don’t want to do – lack of transparency – you don’t want to have people doubting, will you copy their intellectual property,” he said. “You don’t want to have them doubting about is there security issues, etc.”

He clarified that he was talking about Huawei in particular, not China itself.

“I would not interpret Huawei as China,” Chambers told The Journal. China will protect intellectual property when doing so is in the country’s “best interest. … And that day is coming.”

Chambers’ comments drew a sharp rebuke from Huawei. William Plummer, vice president of external affairs for the company, called the statements “unfortunate,” and said his company has “great respect for Cisco, and, like Cisco, Huawei has earned trust and respect in the over 140 markets in which we do business.”

According to The Journal, Plummer also noted that Huawei has 500 customers who are telecom operators as well as 50,000 patents of its own. “Huawei has a strong history of respect for the intellectual property rights of others, and the protection of our own,” he said.

Cisco and Huawei have a history of tough competition, with Cisco reportedly suing Huawei for patent infringement, a case that was settled a year later.

The Chinese company’s networking business made a strong push into the North American market last year, hoping to grab some market share from Cisco and other vendors. It was the latest challenge to an enterprise networking space that has for years been dominated by Cisco. However, over the past couple of years, vendors like HP and Juniper have positioned themselves as lower-cost alternatives to Cisco, and have succeeded in stealing away some share in the switch and router markets, according to analysts. Cisco executives have hit back, saying their rivals only offer “good enough” networking solutions.

Biggest Threat

Chambers has been quick to point to Huawei as the rival he is most wary of. At the company’s Analyst Day in September 2011, Chambers brushed aside HP, Juniper and Avaya as threats. He had more cautious words for Huawei.

“Huawei – it’s going to be a tough one,” Chambers said. “Those first three [Juniper, HP and Avaya], I think we have a good chance of completely distancing them and leaving them behind, and I measure our success on whether we do that or not. Huawei is going to be a very tough long-term competitor.”

He suggested at the time that Cisco take the offensive in the competition with Huawei and make a strong push into the Chinese market.

Security Concerns

However, Huawei in recent weeks has seen its share of struggles, due in large part of the perception that the company has a tight relationship with the Chinese government and military, a claim the company denies.

Huawei officials in March learned that the Australian government had banned the company from bidding on a $38 billion (£24bn) fibre-optic network in that country. Australian government officials did not say why they placed the ban on Huawei, though reports indicated that the country’s intelligence officers were concerned about recent hacking attacks that allegedly were tied to China.

In addition, Symantec executives last year decided to end a four-year alliance with Huawei, and last month completed the $530 million (£333m) sale of its 49 percent stake in Huawei Symantec Technologies. The joint company develops network security solutions.

Symantec officials last year said it was time for the joint venture to have a single owner. However, reports from The New York Times and others indicated that Symantec officials worried that Huawei’s close ties with the Chinese government would make it impossible for Symantec to receive classified information from the US government regarding cyber-security threats.

Jeffrey Burt

Jeffrey Burt is a senior editor for eWEEK and contributor to TechWeekEurope

View Comments

  • Hi Jeffrey,

    In a Washington Times story, Cisco CEO John Chambers proudly bragged:

    "What we're trying to do is outline an entire strategy of becoming a Chinese company."

    http://www.washingtontimes.com/news/2004/dec/25/20041225-114039-4953r/

    Quite a lot of Cisco's products are manufactured in China, so Cisco CEO John Chambers bragged in a story featured in The Economist:

    "Cisco also has a record of being willing to reorganise itself. It was an early outsourcer of manufacturing, for instance. Many of its products are never touched by a Cisco employee, but built by a contract manufacturer, tested remotely and then shipped directly to the customer."

    http://www.economist.com/node/14303574?story_id=143035

    So it appears Cisco's Chinese manufactured products are never touched by a Cisco employee before being shipped to U.S. customers by Cisco's manufacturing contractors located in China (the unanswered question is who owns Cisco's Chinese manufacturing contractors, perhaps it's the People's Liberation Army - PLA?).

    And exactly what are the national security standpoints of using Cisco's Chinese manufactured equipment which is never touched by Cisco itself after being manufactured in China and then installed into the U.S. internet infrastructure?

    Cisco will double its manufacturing in China, Chambers said, a move worth approximately $14 billion, based on the $7 billion Cisco said it purchased from China over the past five years.

    The company has great influence over where its suppliers manufacture, and many would be directed to do so in China, Chambers said.

    While Cisco CEO John Chambers is a registered Republican and was a supporter of Senator John McCain's presidential candidacy, he states:

    "One thing a technology company should never do is fall in love with one political party or one form of government."

    http://pcworld.about.net/od/networkin1/Cisco-to-spend-US-16B-in-China.htm

    Furthermore, after receiving a $1.2 billion foreign profits repatriation tax holiday in 2004, Cisco created 237% more new jobs in locations outside of the United States than it did in the U.S.

    Cisco's own internal slide presentation visually documents how after receiving a $1.2 billion foreign profits repatriation tax holiday in 2004, Cisco on a MASSIVE SCALE ramped-up the transferring of BILLIONS IN PROFITS from its U.S. operations to tax havens overseas:

    http://www.bradreese.com/images/cisco-capital-structure-fy11.jpg

    In October 2011, the United States Senate Permanent Subcommittee on Investigations reported:

    "The 2004 repatriation rewarded corporations that kept substantial funds offshore, and has created a new incentive for U.S. corporations to keep shipping jobs and diverting domestic funds offshore. Data shows that the 2004 repatriated funds flowed largely from tax havens, rewarding corporate behavior that moved funds to offshore locales rather than U.S. plants or manufacturing. The long term consequence of that policy is the current corporate stockpiling of offshore funds in anticipation of another repatriation tax break allowing multinational corporations to use a 5.25% tax rate in place of the top 35% rate that applies to domestic corporations. Such disparate tax rates punish small and mid-sized domestic corporations that don't do business offshore, by placing them at a competitive disadvantage, allowing their competitors to escape paying their fair share of taxes, and discouraging multinational corporations from investing in America. The AJCA's negative effects, in both the short and long-term, provide strong evidence that repatriation tax breaks create unfair tax advantages for a narrow sector of corporations with damaging economic impacts on the U.S. economy as a whole."

    http://www.bradreese.com/blog/10-11-2011.htm

    Additionally in a scathing report, Bloomberg documented how Cisco is EVADING U.S. income taxes by transferring BILLIONS IN PROFITS from its U.S. operations to tax havens overseas:

    http://www.bloomberg.com/news/2011-06-28/biggest-tax-avoiders-win-most-gaming-1-trillion-u-s-tax-break.html

    According to the Bloomberg report:

    “Why should we reward firms for successfully gaming the tax system when we in turn are called on to make up the missing tax revenues?

    “Much of these earnings overseas are reaped from an enormous shell game: Firms move their taxable income from the U.S. and other major economies -- where their customers and key employees are in reality located -- to tax havens."

    Cisco is a "FRIEND" of the U.S. Government and the "ENEMY" is Huawei?

    Sincerely,

    Brad Reese

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