San Jose, Calif.-based Cisco, the world's leading maker of networking gear, faces ever increasing competitive pressure from China-based Huawei, which is currently second worldwide. Huawei is expanding its business from telecom customers to targeting other types of enterprise customers, including known financial institutions and health care organizations in North America and everywhere. However, these are also among Cisco’s markets.
Signs that Cisco Systems is fully aware of Huawei expansion came this month when Cisco CEO John Chambers reportedly said Huawei does not always "play by the book" in areas such as computer security and intellectual property protection.
Other Western companies have also questioned the business tactics used by Huawei over the years, but Chambers' comments show Cisco sees something growing in its backyard, said Andre Kindness, an analyst for telecom market tracker Forrester Research.
"They have been recognizing that the red tide is coming so to speak," Kindness said. "Huawei is ready to dominate the worldwide market."
Huawei now has business operations in Boston; San Diego; Plano, Texas; Bridgewater, New Jersey; and, as of a year ago, a new research and development facility in Santa Clara, California, just 16 kilometers or so from Cisco's headquarters. So, Cisco is cautious, said Adrian Drury, an analyst for research firm Ovum.
"Absolutely, Cisco sees Huawei in its rearview mirror more and more," Drury said. "As a consequence, what we are seeing now is direct competition between the two organizations." Cisco politely declined to elaborate on its CEO's comment.
Huawei has a history of unorthodox practices. Began in 1987 and long rumored to have close ties to China's military, over the years media reports have detailed alleged offenses by Huawei, ranging from copyright infringement to providing easy loans to clients in order to get their business.
Last 2003, Cisco sued Huawei for patent infringement for allegedly copying the company's source computer code. Cisco dropped the lawsuit after the two sides reached an out-of-court settlement.
Still, Chambers' comments seemed to ring true, said Shaw Wu, an analyst for Sterne Agee & Leach.
"Five or 10 years ago there were several issues with intellectual property, but since then their stance has changed," Wu added. "Frankly, I found the Chambers’ comments somewhat startling."
Analysts say Huawei has already jumped to number one in sales of networking gear to telecom firms, ahead of Cisco, Ericsson, Alcatel-Lucent and Nokia Siemens Networks, a joint venture of Nokia and Siemens.