Cisco Creates $100 Million Joint Venture in China

The networking giant will work with Chinese IT vendor Inspur to create a company that will sell and develop hardware and services in the country.

Cisco CEO

Cisco and Chinese tech vendor Inspur Group will create a joint venture that will sell Cisco networking gear and will develop and build hardware in the massive China market.

The new organization created through the $100 million agreement also will develop and deliver technologies and services in an array of areas, from cloud computing and data centers to smart cities and big data, according to Cisco CEO Chuck Robbins.

The joint venture was one of several deals announced by U.S. companies this week during the visit of Chinese President Xi Jingping's to the United States that highlight how attractive the China market is to businesses on this side of the Pacific Ocean. Microsoft made several partnership announcements with Chinese tech vendors, including with search giant Baidu and China Electronics Technology Group, as well with Tsinghua Unigroup, via Microsoft's Chinese cloud partner 21Vianet Group.

During his time in Seattle, the Chinese president met with a number of top U.S. tech executives, including Apple CEO Tim Cook as well as Microsoft CEO Satya Nadella and founder Bill Gates.

Other major business announcements included that from airplane maker Boeing, which said China will buy 300 of its aircraft for $38 billion. In addition, Boeing will build an aircraft completion plant in the country.

The announcement by Cisco's Robbins confirmed earlier reports that the world's largest networking vendor would enter into a partnership with Inspur as part of its continuing effort to expand its reach into the China market, which is the second-largest economy in the world, behind the United States. According to the CEO, China accounts for about 3 percent of Cisco's revenue, though he said he expects that to grow "considerably over time."

"We've always been deeply focused on our customers around the world, and this is absolutely the case in China," Robbins said in a post on the company blog. "We believe that next-generation partnerships are required to deliver what our customers need to enhance China's productivity and bring incredible new connected experiences to China's citizens in the digital world. … Today, as the entire country prepares to digitize, we continue to bring the power of the Internet to new areas—including manufacturing, transportation, education and health care. I'm incredibly optimistic about the long-term prospects of successful partnerships in the country."

Inspur will have a 51 percent stake in the new joint venture.

The partnerships announced by Cisco and Microsoft are the latest efforts by U.S. IT vendors to grow their presence in China, which not only has a massive population but also a growing and increasingly affluent middle class. It's also been a more difficult market to penetrate in recent years, due in part to cyber-espionage suspicions by both the U.S. and Chinese governments—fueled partially by the revelations over the past couple of years by former National Security Agency contractor Edward Snowden—and by Chinese leaders' desire to bolster the IT industry in their country.

Hewlett-Packard in May announced that it was creating a joint venture with Tsinghua Group to create a new H3C that be the exclusive provider of HP hardware products and support services in the country. Intel has unveiled a series of investments and partnerships in the country over the past year, while chip makers Qualcomm and Broadcom also have announced alliances with chip makers in the country. Dell this year announced a five-year $125 billion investment in China, and Cisco unveiled a $10 billion investment, which includes the Inspur partnership.

Like other vendors, Cisco has seen its business in China take a hit in recent years, although there has been an upswing in recent month. Robbins said during a conference call in August to discuss the company's financial numbers that in the most recent quarter that the company's revenue in China was down 3 percent year-over-year, which he said was the best performance in eight quarters.