Cisco Systems Inc is set to invest more than US$10 billion in China during the next few years, a costly tactic to get back in the government’s good graces and stay competitive with Huawei Technologies Co (華為).
Cisco’s investment agreement, sealed with China’s state economy planner, comes as the government promotes local firms at the expense of US companies such as Qualcomm Inc and Microsoft Corp. China said it was concerned with the security of US technology since Edward Snowden revealed details of spying by the US National Security Agency.
Cisco is losing market share in the networking business to Huawei and ZTE Corp (中興), both based in Shenzhen and has said it is open to forming partnerships in China. Cisco chief executive officer John Chambers said he is optimistic Cisco would benefit from improved relations between the US and China, yet the company risks investing US$10 billion and not generating significantly more business there.
“Cisco’s been hit about the hardest of all the tech companies,” business consultancy APCO Worldwide chairman James McGregor said. “Where this all leads to, nobody knows.”
Cisco’s agreement was with the Chinese National Development and Reform Commission, the same organization that extracted a US$975 million fine from Qualcomm after starting an antitrust investigation.
The US$10 billion investment would create jobs, fund research and development, spur innovation and equity investment, Cisco said on Wednesday in a statement. Cisco also signed agreements to help 100 colleges advance training.
Chambers made the announcement after meeting with Chinese Vice Premier Wang Yang (汪洋) and other government leaders in Beijing. Revenue from China plunged 20 percent in the quarter ending April from a year earlier.
Cisco shares rose 0.8 percent to US$28.93 in New York, widening their gain to 4 percent this year.
Cisco is the latest technology company to spend billions trying to gain a share of the world’s biggest market even as the government promotes homegrown competitors.
Microsoft pledged billions of dollars in investments during the past decade, urged the government to tackle piracy and in September last year started selling the Xbox One video-game console there.
Hewlett-Packard Co this year sold a controlling stake in its local networking and server business to a Chinese rival, hoping to boost its contract win rate.
“People are adapting the best they can because the market matters so much, but what this looks like in 5 or 10 years is anybody’s guess,” McGregor said.
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