The China Syndrome

China's technical prowess is turning it into one of the largest networking markets in the world--and into U.S. vendors' biggest competitor.

December 18, 2004

4 Min Read
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One of the more telling moments in last month's analysts call with Cisco CEO John Chamber's about quarterly earnings came toward the end of the conversation. When discussing competitors to Cisco's networking dominance, Chambers didn't cite any of the networking giant's usual suspects. Instead, he focused laser-like on China.

To anyone who has been paying attention, this should have come as no surprise. China is fast becoming one of the world's largest networking markets, and China-based networking manufacturing companies are increasingly targeting overseas markets.

Consider this: A recent report found that China is one of the fastest-growing carrier Ethernet markets in the world, with the number of Chinese Ethernet service connections doubling in the first half of 2004 alone to 30 million subscribers.

That means, of course, that China is a potential goldmine for U.S. networking companies, which are wasting no time in capitalizing on the burgeoning Chinese market. Not a day goes by, practically, without an announcement about an American networking company signing a major deal in China.

Cisco, for example, was recently chosen by China Telecom to be the primary equipment provider for the business network portion of the China Telecom Internet Protocol (IP) Next-Generation Network (also known as ChinaNet Next Carrying Network or CN2). The financial terms of the deal were not announced, but in the past six months, China Telecom has awarded contracts valued at more than $100 million to Cisco.In return, China-based companies, sometimes in partnership with U.S. and other foreign companies, are targeting U.S. and foreign markets.

China's Huawei Technologies, for example, will supply a UMTS 3G network to Dutch mobile operator Telfort BV, a deal that could be worth as much as $500 million.

It's not just inexpensive labor that is helping China compete globally. It's technological prowess as well. When 3Com took dead aim at Cisco by releasing a new line of advanced switches, it turned to China's Huawei Technologies for help. The switches were developed as part of a joint venture 3Com has with Huawei Technologies, of which 3Com owns 49 percent.

So how can U.S. companies compete with the Chinese networking tiger? Cisco's Chambers says that the key is not to try and compete on price, or in building commodity products. Rather, he says, Cisco plans to beat the Asian competition by relying on cutting-edge designs and equipment, service and support, and above all, integration.

Only time will tell whether that's enough, or whether another high-tech market will fall victim to overseas competition. Report: Ethernet Use Is Booming In China
Driven by consumers, rather than businesses, the number of connections double in first quarter of 2004.

3Com Targets Cisco With New Line Of Advanced Switches
Family of Terabit core switches will be available at less cost than those offered by market leader.

Cisco Inks Deal To Provide Managed IP Network Services In Taiwan
Collaborates with Chunghwa Telecom to expand delivery and adoption of IP-based managed network services for SMEs.

Cisco Chosen To Be Primary Equipment Provider for China Telecom Net
Will provide hardware for business network portion of the China Telecom Internet Protocol (IP) Next-Generation Network.

Ericsson To Build China Telecom's Next-Gen IP Backbone
Ericsson has been awarded a contract by China Telecom to build its next-generation IP backbone network, known as ChinaNet Next Carrying Network (CN2). China Telecom Selects Alcatel For IP/MPLS Network
China Telecom has chosen the Alcatel carrier-class IP service routing and management solution to deliver high value data services over its nation-wide IP/MPLS network, ChinaNet2

DEEP BACKGROUND

Cisco Reports Solid Revenue, Growth In First Quarter
Cisco reported a strong 29 percent increase in profits on an 17 percent jump in revenues to $6 billion, due to strong sales in its enterprise product lines as well as in home networking and IP telephony.

Cisco Targets Asia With Significant New Investments
Announces $32 million, Shanghai-based-research facility, venture fund in India, new financing in Korea.

Juniper Opens China R&D Site
Move is part of the internationalization of research and development strategy.Search The TechWeb Network

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