Cisco not expecting any growth in Asian market for two years

US networking vendor Cisco Systems does not expect to see any growth in its overall Asian market for the next two years, a leading company executive says. 'The biggest concern so far is Japan,' says Greater Asia VP Bill Nuti, noting that what happens in the Japanese economy will have a 'wide ranging' effect on what will happen in Asian as a whole in the next year or two.

US networking vendor Cisco Systems does not expect to see any growth in its overall Asian market for the next two years, a leading company executive has said.

Of particular concern to Cisco is the Japanese market, while business in China remains strong, said Bill Nuti, vice president, Greater Asia at Cisco, based in Singapore, confirming remarks made late last week by company CEO and President John Chambers. Addressing financial analysts in the U.S. following the release of Cisco's fiscal fourth quarter and fiscal 1998 year-end financials, Chambers said that Cisco is not going to rely on its Asian business expanding over the next two years.

"John is basically concerned with the volatility of the Asian markets," Nuti said. "It's gotten everyone in Asia from the business perspective acting somewhat more conservatively. The biggest concern so far is Japan." Nuti noted that what happens in the Japanese economy will have a "wide ranging" effect on what will happen in Asian countries as a whole in the next year or two.

However, the situation for Cisco in Asia is not all gloom and doom, with the company experiencing what Nuti terms "very substantive growth" in Greater China (China, Hong Kong and Taiwan) year on year for fiscal 1998, particularly in China, which is now one of the vendor's top 10 largest revenue producing countries. "(China is) a big positive in the whole unpredictable landscape of Asia," Nuti said. Other bright spots in Asia for Cisco are Singapore and India, both of which markets continue to grow at very rapid rates, he added.

Hovering on the horizon, although, is the specter of China's mooted devaluation of its currency, the renminbi. Nuti said that Cisco has tried to factor such an occurrence into its future plans, although he added, "It's difficult to build any economic or political profile into business plans."

With financial analysts estimating a potential renminbi devaluation at anywhere between 5 percent and 25 percent, Nuti said that a devaluation near the low-end was unlikely to affect Cisco much, leaving other questions to be pondered. "If it does devalue, will China continue to invest in telecoms?" he asked. "Will that help or hurt us? I don't know."

Down the line, although Asia's contribution to Cisco's overall revenues will probably remain "in the medium to high single digit" range, the Asian contribution will again begin to represent growing revenue, Nuti said.

Whatever happens, Nuti stressed that no layoffs in Asia are currently in the offing. "No, we will not retrench or have any layoffs this year," he said. "We've made a commitment to our people and to the growth of Asia long term. Down the road, we're counting on the economic situation to subside -- be it calendar year 1999 or 2000 -- sooner rather than later," he added.

In fact, Cisco is still hiring in Asia, with plans to add 50 more staff before the end of this year -- provided the current economic climate doesn't worsen, Nuti said. "Barring any disturbance in Asia, we'll hire another 100 (staff) in calendar year 1999," he said. The majority of the new hires will be sales and customer support staff, primarily for positions in China, Hong Kong and Taiwan. The company's headcount in Asia as a whole has already mushroomed in size, growing from 175 employees in December 1997 to 425 employees last month. In China, the number of staff rose from 50 in December of last year to reach more than 200 today, he said.

As for which country will recover first from the ravages wrought by the Asian economic flu, Nuti is backing South Korea and Thailand. "I do believe that South Korea will pull out first," he said. "They are the 13th largest economy in the world and have been entrenched in the economic crisis for as long as some of South Asian countries. I also think Thailand will be a very close second or right there with South Korea in a tie."

Turning to China, Nuti admitted that Cisco hasn't done the best job lately in getting news out concerning new contract wins or the company's investment in the country. "We're getting smarter on the marketing side," he said.

Nuti revealed that Cisco has recently won two core backbone projects with the Guangxi and Henan PTAs (Posts & Telecommunications Administrations). He also claimed that the recent investments in China by competitors Bay Network Inc. and 3Com Corp. copied "almost to the word" that of Cisco back in June of this year when company CEO and President John Chambers visited the country. [See "IDC Report: Bay Makes Timely Investments in China," June 10, and "3Com Investments in China Surpass US$100 Million," July 29. ]

Cisco committed to invest US$100 million into China over the next two to four fiscal years in June, Nuti said, and entered into agreements with the country's Ministry of Information Industry (MII) and other government agencies. The information industry ministry was formed earlier this year through the merger of the Ministry of Electronics Industry and the Ministry of Posts and Telecommunications.

The networking vendor has also embarked on its Center of Network Excellence (CNX) program in China, Nuti said, with a center due to open in Beijing next month offering services such as local training and certification on equipment. Already operational in Beijing since June is Cisco's technical assistance center (TAC) aimed at providing customers with enhanced support, which already fields about 400 calls a month, Nuti said. A similar TAC is scheduled to open in South Korean capital Seoul in the next 30 days.

Looking to the future, Nuti believes that China will look to follow in the footsteps of telecom vendors such as U.S. West Communications Inc. and Sprint Corp. by building an Internet Protocol-based infrastructure on top of their existing networks in order to handle the convergence of video, voice and data. Such convergence is also likely to change the face of competition for Cisco in China.

"Although the two-horse race (behind Cisco and 3Com) is still alive and well, over the next couple of quarters we'll be facing Lucent, Nortel and potentially any other large telecom buying into the IP space," Nuti said.

Cisco, in San Jose, California, can be reached at +1-408-526-4000 or http://www.cisco.com/.

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