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Commentary: Cisco's wake-up call

Although Huawei isn't a major threat to Cisco Systems, the networking giant should still be paying attention to this low-cost player.

Commentary: A wake-up call for Cisco
By Forrester Research
Special to CNET News.com
March 20, 2003, 10:20AM PST

By Vijay K. Bhagavath, Analyst

Huawei, the Chinese telecommunications gear maker, has grown rapidly in Asia. Although Huawei isn't a major threat to Cisco Systems, the latter should still be paying attention to this low-cost player.

With $3 billion in revenue and a meteoric growth rate, Huawei is China's telecom poster child. The network equipment maker has emerged as a low-cost alternative to Cisco and other telecom incumbents. Here is what's driving this Asian firm's ascent:

• Worldwide presence. Huawei exports its gear to 40 countries, covering every major geographic region. Its distribution network consists of 32 regional headquarters in six countries, linked to a string of sales, research and development, and manufacturing offices scattered across 150 cities worldwide.

• Broad equipment portfolio. Despite its newcomer status, Huawei sports a wide array of enterprise and carrier networking gear, with more than 20 products for switching, routing, optical transport, wireless and broadband access. The vendor offers five different categories of enterprise switch routers alone.

• Aggressive pricing. Huawei aggressively prices its telecom and data-networking products, offering significant discounts over its Western rivals. How does Huawei stay in business with steeply discounted prices? By taking advantage of low-cost manufacturing and R&D facilities located throughout China.

No big threat--yet
While Huawei grabs many telecom industry headlines, Forrester believes that the Chinese company does not yet represent a significant threat to Cisco's networking dominance. Here's why:

• Cisco's products win the feature showdown. Forrester evaluated the low-end enterprise switches from both Huawei and Cisco. Cisco easily wins the feature-by-feature analysis. Huawei's products lack some features that IT buyers like about Cisco's Catalyst switches, including predictable performance.

• Huawei sells single products. Huawei employs a simple selling model: Push gear that closely resembles Cisco models, only


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cheaper. But large enterprises don't buy single products for data-networking equipment. Cisco's sales teams, by contrast, understand corporate purchasing processes and leverage their networking expertise.

• Risk-averse IT buyers will stay put. In a recent survey, Forrester found that more than 90 percent of IT buyers in the United States are risk averse, preferring to stick with their existing networking vendor. This stickiness will continue to hurt Huawei's attempt to grab market share away from Cisco.

Keeping the newcomers at bay
Despite Huawei's current shortcomings, Cisco and U.S. rivals Extreme Networks and Foundry Networks can't dismiss this pesky new entrant. Forrester believes that other low-price players will soon enter the market. To keep these newcomers like Huawei at bay, networking firms should:

• Focus on features, not silicon. With the ready availability of silicon from Broadcom and Intel, Cisco and its U.S. rivals can no longer rely on their chip prowess as a differentiator. Instead, these telecom vendors must focus on feature innovation and rapid implementation of customer requests. A good place to concentrate is packet accounting and processing to provide IT groups with real-time visibility into application flows for diagnosing performance problems.

• Give top priority to enterprise-oriented voice over IP (VoIP). To counter Huawei's single-product approach, incumbents should offer predictable performance across their networking products. How? By providing consistent quality-of-service implementations across their LAN switches. This level of service consistency will be required for enterprise VoIP--a key growth sector in data-networking equipment.

• Cut prices via low-end private-label products. Cisco should also attack new entrants with low-priced gear. But rather than pulling down price levels across its product line, the networking giant should build a line of private-label products. A good start would be its low-end, stackable 29xx series Ethernet switches.

© 2003, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.