Boston, MA 11/29/2013 (wallstreetpr) – Cisco Systems, Inc. (NASDAQ:CSCO)’s CEO John Chambers loved China, at some point being reported as saying that if he wasn’t American, he would be Chinese. That was in June 2005 when addressing some Asian newsmen who visited CSCO headquarters. I’m not sure whether this love remains, but there are reasons to doubt it today.
China has long been considered Cisco’s biggest emerging market. But it’s only big until you look at the revenue data from the market which accounts for less than 5% of the company’s total revenue. This is in contrast to its Chinese rival Huawei Technology Co Ltd (SHE:002502) whose 70% of international business comes from America. So the question might be about whether it was okay for the CSCO to put premium in Chinese market.
Perhaps it would make a lot of sense to know what the company has invested in China to understand how costly it has been casing the Yuan. In 2007, Chambers pledged a 5-year investment plan in China during which Cisco Systems, Inc. (NASDAQ:CSCO) would double its manufacturing in the country. That investment was put at $16 billion for the half a decade investment period. In late 2009, the U.S. networking giant had already made investment penetration in more than 50 companies in China, all domestic entities.
However, if data from research consultancy firm Ovum are correct, then there is little to show for the huge investment in China. The data reveal that Cisco’s market share for carrier equipment has fallen in Asia since the big investment. In comparison, other markets such as Europe, MEA and Latin America sales have risen in recent years.
Even former Cisco Systems, Inc. (NASDAQ:CSCO) executives now admit silently that China was never a big promise for the company’s future. Moreover, underestimating the strength of the rival Huawei Technology Co Ltd (SHE:002502) has turned to be a costly blunder. Not even a hurried partnership with ZTE Corporation (SHE:000063), a local rival for Huawei, in short-lived relationship could cool the red-hot competition in the market.
It thus goes without saying that for Cisco Systems, Inc. (NASDAQ:CSCO) to return value to investors, putting high premium in China is not worth it.
