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Why China Remains a Big Issue for Cisco

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Continued weakness in China is hurting Cisco

In the previous two parts of this series, we discussed Cisco’s (CSCO) performance in the Americas (the United States and Latin America) and EMEA (Europe, the Middle East, and Africa) region. Another important region for Cisco is the APJC (Asia-Pacific, Japan, and China) region. However, Cisco’s revenue growth from the APJC region remains in negative territory, as the chart below shows.

The main reason for Cisco’s continued negative growth in the APCJ region is the continued weakness in China (FXI). Year-over-year revenue growth in China declined by 19%, while it declined by 8% in Brazil. This decline was partially offset by revenue growth of 11% in India (EPI).

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US tech giants are facing issues in China

US technology companies continue to face issues in China. A report from China’s government, authored by the Internet Media Research Center, alleged that the US government conducted snooping activities on Chinese networks. A China Youth Daily report indicated that Cisco aided these spying activities.

China represents a good opportunity for networking players, as it’s in the middle of rolling out its LTE/4G network. Alcatel Lucent (ALU), a French company that competes with Cisco in the networking market, gained a contract with China’s major telecom providers to provide its 7950 XRS core router. Here, Alcatel-Lucent took advantage of Cisco’s relatively weak position in China.

As well as Cisco, other US tech giants such as—Microsoft (MSFT) and Qualcomm (QCOM)—have faced similar issues in China. For example, Microsoft Windows is considered a security threat in China due to the United States’ aggressive National Security Agency’s (NSA’s) domestic and international surveillance program.

Similarly, the Chinese government has investigated Qualcomm for alleged monopolistic activities in China. Recently, Qualcomm paid a fine of $975 million to the Chinese government as part of an antitrust investigation.

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