isco Systems Rides Asia's Economic Storm
January 25, 1999 3:13 AM PST
By Gabriella Faerber
Special to worldlyinvestor.com
Last year, Cisco Systems (symbol:CSCO), the world's largest maker of networking for the Internet,
said it did not expect to see any growth in its Asian business for two years. Asia's economic
meltdown has hit information technology (IT) spending hard and regional governments have put
much infrastructure investment on hold.
Ironically, that may actually be working in Cisco's favor. While competitors run for cover, Cisco is
using the breathing space to consolidate its presence in Asia Pacific.
"Cisco decided over a year ago, that we were going to dramatically increase its investment in Asia
at a time when many vendors were pulling back or curtailing their support of the region," William
Nuti, Cisco's President of Greater Asia, said in November last year as he announced results for the
1999 first quarter.
Cisco racked up growth of 40% year-on-year for the quarter ended October 1998. The latest report
from International Data Corp (IDC) Asia Pacific for the 1998 second quarter ranks Cisco the top
provider of local area network (LAN) systems in Asia, grabbing 30% of the US$514 million LAN
market.
Cisco's Asia clients include heavyweights such as the Asian Development Bank, Hongkong Bank,
Hongkong Telecom (symbol:HKT), Indonesia's Indosat (symbol:IIT), Korea Telecom , Malaysia's
Petronas, Philippine Long Distance Telephone Company (symbol:PHI), Singapore Telecom
(symbol:SGTCY), the Stock Exchange of Thailand, Telekom Malaysia and Tenaga Nasional.
Strength in Numbers
One of the main thrusts of Cisco's strategy is to focus on the headcount. In the first place that
means lifting staffing levels. At the end of the 1999 first quarter, staff will rise by 250% over the 1998
period. By the end of last year, staff totaled some 450. In China, the number of employees rose
150% to some 200. But on another level, Cisco is going all out to address one of Asia's most
pressing concerns - the acute labor shortage, which could stunt IT progress. The Cisco Network
Academy program gives networking skills and training to high school and college students. When
the Cisco Philippines Academy launched in May 1998, Paul Lawhon, regional director for emerging
markets, said, "The driving force behind this is that there are more than 190,000 job vacancies in the
US for these skills. The lack is much more acute in Asia."
And the benefit will not just be felt by Cisco, but the networking industry in general. "Cisco has
more than 80% of the Internet market. The more people get on the Internet, the better it will be for
us. Also we have a need for trained networking professionals," Lawhon continued.
But investment in IT infrastructure needs to be maintained for Cisco to sustain continued growth.
The confident performance in southeast Asia is not entirely matched in the countries of north Asia.
Trade is marching along in Taiwan and Hong Kong. In 1998, business rose 50% in both countries.
But last year, trade in Korea fell some 50% and Japan remains a headache. Japan used to account
for about 11% of Cisco's Asian business. Now it's down to around 4% - a fine example of the effects
of slashed spending on Internet technologies. Some analysts see Japanese corporate IT
infrastructure budgets being hammered by up to 34%, with a 12% cut in Internet spending.
China Complex
China is one of Cisco's top ten revenue producing countries and Cisco continues its offensive to
grab bigger market share, no doubt driven by numbers which show that China's IT market is the
fastest expanding in Asia.
By 2002, IDC sees the China IT market valued at some US$25.6 billion. Furthermore, the industry
analyst sees China Internet users mushrooming from 2.7 million this year to more than 4 million in
2000 and 6 million in 2001. By 2002, there should be a whopping 9.4 million users.
Cisco is plowing some US$100 million into China over the next two to four years. This year alone,
Cisco has already unveiled plans to sink some US$6 million into the mainland to boost customer
support infrastructure.
Those efforts are paying off. Cisco boasts crucial agreements with the Ministry of Information
Industry and has bagged deals with major players such as China Telecom (symbol:CHL), China
Southern Airlines (symbol:ZNH) and China Central Power Group. Cisco recently launched the
Center for Networking Excellence in Beijing and has just opened a Technical Assistance Center.
But rumors that the yuan, China's currency, may be devalued continue to nag. Some analysts say
there will be no devaluation - well, for the next six months anyway. That school of thought says
Beijing has learnt from the recent currency debacle in Brazil.
The markets are not so sure. Already concerns over the yuan and fears of a devaluation of the Hong
Kong dollar are seeing regional markets seesaw. Analysts say that if and when the devaluation
comes, it could be anywhere between 5% and 25%. That could drastically affect China's IT
investment plans.
Gabriella Faerber is a journalist based in Kuala Lumpur, Malaysia, who writes for a number of
publications including The Asian Wall Street Journal. |
