Nov 22 Cisco Systems Inc and Huawei
Technologies Co, two of the world's largest
communications equipment makers, have been slugging it out for a
decade now - in court, in emerging markets, in the lobbies of
government and even on blogs.
The past year suggests they've ground to an expensive
stalemate, raising questions about their futures on each other's
lucrative home turf.
Earlier this month Cisco CEO John Chambers admitted in an
earnings call that political dynamics were stymieing his
company's long march into Huawei's backyard.
Asked whether the recent U.S. spying scandal was affecting
overseas business, Chambers said it was having an impact,
particularly in China, which is Cisco's biggest emerging market
country but represents less than 5 percent of its total revenue.
Huawei has also admitted something of a defeat in the United
State for carrier equipment, which accounts for more than 70
percent of its global revenues.
"We are not interested in the U.S. market anymore," Eric Xu,
one of Huawei's rotating CEOs, said in April. "Generally
speaking, it's not a market that we pay much attention to."
The rivalry reflects how intertwined the communications
industry has become with growing concerns about security - and
the challenges two communications giants face in building a
genuinely global presence in an interconnected world where no
major market can be ignored.
It wasn't always like this. Cisco, dominant in building the
hardware that links computers and networks since the early
1990s, took little notice of Huawei until it suspected that the
Chinese upstart was reverse-engineering its products.
It sued the company in 2003 for patent infringement, only
settling after Huawei agreed to make changes to its equipment.
The wounds are still raw: last year the two sides again
aired their grievances against the other, each claiming victory
in the original suit.
California-based Cisco, former executives said, refused to
take Huawei seriously despite warnings that they were making
headway in emerging markets with cheaper equipment.
"For years San Jose pooh-poohed Huawei until it started
hurting in post-2008," said one former executive.
When Cisco did respond, it was by partnering with ZTE Corp
, Huawei's local rival, but that relationship went
sour and was formally disbanded in 2012.
In the meantime Shenzhen-based Huawei made headway not only
into the low-end routers and switches business, but was also
eating into Cisco's home terrain of higher end equipment.
"When a competitor's gear gets good enough, not as good or
as secure, then a lot of customers were prepared to go with
that," said another former Cisco executive.
For Chambers, the holy grail had long been China. He said in
an interview with Reuters last year that he had been visiting
the country for 25 years.
To a group of Asian journalists visiting Cisco's
headquarters in June 2005 he said: "If I wasn't American, I
would be Chinese," according to a Xinhua news agency report.
In late 2007 he flew to Beijing to pledge $16 billion worth
of investments in China over the next 5 years during which time,
Chambers said, Cisco's manufacturing in China would double.
By 2009 it had invested in more than 50 Chinese companies. A
But there has been little to show for it. Cisco's share of
the carrier business - selling switches and routers to service
providers - has remained steady in Europe at around 40 percent
and has risen in the Middle East, Africa and Latin America in
recent years, but has fallen in Asia, according to data from
Ovum, a research consultancy.
In China it fell from 19 percent in the second quarter of
2010 to 12 percent in the same quarter this year.
One former executive who used to travel overseas with
Chambers said he would argue in vain with the CEO about the
dangers of overinvesting in China, saying his expectations were
"John thought he could get more out of it than even a sober
assessment at the time suggested couldn't be done," he said.
For sure, many Western companies have found China harder
going than they'd anticipated, but Cisco's poor performance in
China stands in contrast to Huawei's growing market share.
In equipment for service providers, for example, Huawei's
revenues grew by 84 percent between the second quarter of 2010
and this year, against Cisco's 2.5 percent, according to Ovum
data. While Cisco's market share shrank, Huawei's grew from 56
percent to 64 percent.
And things aren't likely to get better any time soon. In the
wake of Edward Snowden's revelations about the extent of U.S.
National Security Agency electronic spying programmes aimed at
China, among other countries, some Chinese media have questioned
"Although the company has issued statements saying that it
is not involved in monitoring citizens or government
communications in China or anywhere else, recent events mean
that it may be quite a long time before we can trust Cisco
again," wrote the Beijing-based Global Times on June 20.
One Beijing-based source in the technology industry who
declined to be identified because of the subject's sensitivity
said China's desire to eliminate any dependence on foreign
technology wasn't new, but that the NSA revelations had fostered
a new sense of urgency.
"I'm not sure the government has fundamentally changed
course, but they now have the wind at their backs," he said.
Cisco's woes in China are in some ways a mirror image of
what Huawei has been enduring in the United States - albeit more
Last year the U.S. House Intelligence Committee released a
report urging U.S. telecommunications companies not to do
business with Huawei and ZTE because it said potential Chinese
state influence on the companies posed a security threat.
Both Chinese companies have denied that they have links to
the Chinese government.
Huawei has spent heavily on lobbying lawmakers and other
U.S. officials: $1.2 million in 2012, more than double what it
spent in each of the previous four years, according to Senate
Snowden's revelations, however, have offered the company a
chance to turn the spotlight back on its rival.
While Huawei has for the most part avoided linking Cisco to
the NSA allegations, its security chief John Suffolk asked
rhetorically on his blog whether "all other Governments
ban American technology companies, especially Cisco and Juniper
given their position in critical infrastructures?"
When Cisco's spokesperson John Earnhardt posted a denial of
any involvement in government monitoring to the blog, Suffolk
replied that Cisco should not be surprised if customers and
governments "now pose questions about American tech vendors who
hold a position where they have the means of contributing to
NSA's strategic arsenal of tools and techniques to exfiltrate
data on their targets".
Cisco declined to comment directly on Suffolk's
remarks. Huawei confirmed the blog was written by Suffolk.
Since then both sides have said little about the other.
Suffolk declined to be interviewed about his comments, and a
Huawei white paper on cyber security published in October made
no direct reference to Snowden or the NSA.
Indeed, some argue it's in neither company's interest to
prolong discussions that link their industry to their respective
government's eavesdropping efforts.
Both sides have distanced themselves from any calls to have
the other's equipment banned on security grounds.
Huawei spokesperson Scott Sykes said in response to emailed
questions that "Huawei advocates transnational, fair and open
competition." Cisco denies lobbying Congress against Huawei on
security issues, and has not "provided any government agency
access to our networks".
And neither is there any concrete evidence that either
company has added backdoors in their equipment to allow
This, said Jim Lewis, a senior fellow at the Center for
Strategic and International Studies, a Washington-based think
tank, was deliberate in the case of U.S. companies.
As an official at the Department of Commerce, Lewis helped
the Clinton administration adopt a policy of not requesting
companies to install backdoors.
In any case, Lewis said, the United States and at least
three other countries had the expertise to eavesdrop with or
without a backdoor. "If they want to get into your traffic, they
are going to get in into your traffic."
Felix Lindner, CEO of Berlin-based Recurity Labs, a
respected expert on both Cisco and Huawei security, says both
companies' equipment contained software that was so poorly
written it left them vulnerable to hacking.
"In terms of product security they are very much on a par
with each other."
Both companies say they take security seriously. Huawei's
Sykes said that "our experts immediately start investigations
into potential problems and should there be any security risk we
will provide a solution as soon as possible".
Cisco has pointed to security as a commercial advantage in
its sale pitches.
An internal Cisco sales document obtained by Reuters dated
June 2013 highlighted security flaws in Huawei's low-end routers
uncovered by Lindner. The document said: "Huawei also has
demonstrated lack of process to communicate and manage such
Whatever the truth, concerns over security and their
perceived government links have hobbled both companies in the
For now, Huawei has focused in the U.S. on its handset and
enterprise business. And Cisco spokesperson Earnhardt said that
despite the poor results "we remain firm in our commitment to
Doing anything else, said Naresh Singh, a principal analyst
at IT consultancy Gartner, was not an option: "Cisco will have
to address China because it's a very large market, and it's
(Additional reporting by Alina Selyukh, Steve Stecklow, Lee
Chyenyee, Michael Martina and Paul Carsten)