Cisco Systems reportedly is preparing to announce a partnership with Chinese server maker Inspur Group in an effort to gain a stronger foothold in a highly desirable market rife with growing competition and a national government looking to boost the country’s homegrown tech vendors.
Cisco CEO Chuck Robbins will announce the partnership Sept. 23 during a visit by Chinese President Xi Jinping to Seattle, according to a report in The Wall Street Journal, citing unnamed people familiar with the discussions. It’s unclear how that alliance will work, although options include Inspur reselling Cisco’s networking products, as well as the two companies jointly developing hardware, the sources told the news site.
The initial investment by Cisco will be small, though it could grow in the future, according to The Wall Street Journal.
Xi is scheduled to meet with a number of high-profile tech executives, including Apple CEO Tim Cook and Microsoft CEO Satya Nadella, the new site reported.
With its huge population and a growing middle class that has money to spend, China is a highly attractive market to U.S. tech vendors seeking to grow sales outside of more mature markets such as North America and Western Europe. However, the road into China has become more difficult in recent years because of suspicions by the U.S. and Chinese governments about cyber-espionage—an issue that was further complicated by revelations by former National Security Agency contractor Edward Snowden about that agency’s spy programs—and the desire of Chinese leaders to grow the country’s technology industry.
A growing number of U.S. vendors are using a combination of financial investments and partnerships in hopes of making more inroads into the market. For example, in May, Hewlett-Packard—a key rival of Cisco’s in the networking and data center solutions space—announced it is creating a joint venture with China’s Tsinghua Unigroup to create a new H3C that will be the exclusive provider in the country of HP’s server, storage and networking products, as well as hardware support services.
Tsinghua Holdings is buying a 51 percent stake in the new H3C for about $2.3 billion to create what HP officials said will be the country’s top networking vendor and among the leaders in such segments as servers, storage and services. It will have about 8,000 employees and $3.1 billion in annual revenue.
Other companies are making similar pushes. Intel over the past year has announced a $1.5 billion investment in Tsinghua Unigroup, giving it a 20 percent stake in the state-owned venture that runs Chinese chip designers RDA Microelectronics and Spreadtrum Communications. It also is partnering with Chinese semiconductor manufacturer Rockchip to create Intel-based systems on a chip (SoCs) for tablets, created a $100 million fund for Chinese companies, is building an innovation center in China to accelerate the development of smart systems, and is spending another $1.6 billion over 15 years to upgrade a chip plant in China.
Chip makers Qualcomm and Broadcom in June announced respective partnerships with Chinese tech vendors, and Dell this month announced it is investing $125 billion in the Chinese market over the next five years, part of the vendor’s “In China, for China” 4.0 strategy. In an interview last year with journalists, CEO Michael Dell outlined the opportunity many U.S. tech executives see in emerging markets.
“When you’re talking about the next billion users, they’re not going to come from developed markets,” Michael Dell said. “They’re going to come from developing markets.”
Editor’s note: The story has been changed to correctly show Dell’s investment of $125 billion in the China market.
Cisco Reportedly to Partner With Chinese Server Maker Inspur
Cisco has made similar recent efforts. During a visit to China in June by Robbins and then-CEO John Chambers, the company announced it would invest $10 billion in projects in the country over the next several years.
According to The Wall Street Journal, Cisco—the world’s largest seller of networking gear—has seen its market share and sales in the country fall over the past several years. The company has been hurt by growing competition from the likes of China-based Huawei Technologies, as well as tensions between U.S. and Chinese lawmakers over cyber-security suspicions. U.S. officials in 2012 said Huawei and ZTE—another Chinese vendor—posted security risks because of their close relationship with the Chinese government, going so far as to recommend to U.S. businesses that they not buy products from the two companies over fears of back doors in the hardware that could give Chinese hackers access to corporate or government data.
China pushed back at the suspicions and made similar accusations about U.S. companies such as Cisco, Intel and IBM. China was given some ammunition when Snowden, the NSA contractor, in 2013 began leaking secrets of the agency’s surveillance programs, which included allegations that the NSA used U.S. tech vendors in its spying efforts, allegations that the vendors denied.
Despite all that, Cisco has seen some improvement in China. During a conference call in August to talk about the company’s latest financial numbers, Robbins said that in the most recent quarter, revenue in China was down 3 percent over the same period in 2014: “the best performance we’ve had in the past eight quarters.”