Cisco Systems Inc. During the Chinese government will win?

Cisco expands further in China, but these investments to pay?

Giant Cisco (NASDAQ: CSCO) networks recently agreed to form a joint venture with Chinese manufacturer Inspur server networks and selling cloud computing products in China. The companies announced that they would invest $ 100 million in the project, but did not disclose specific details.

The association is a clear attempt to strengthen the presence of Cisco in China, where sales fell due to competition from cheaper Chinese rivals like Huawei, exacerbated by concerns about cybersecurity US technology companies. Let's look more closely at the difficult relationship with Cisco China, and the difficulties of other high-tech companies in the United States face in the country.

Cisco and China

Once upon a time, Cisco helped build the Great Wall of China. This project has been severely criticized, but helped the company gain a lot of credibility in China. But in the last decade, it is increasing the suspicions and caused leaks ciberespionaje Snowden US high-tech companies, including Cisco, falling from grace.

The Chinese government now plans to remove all foreign technology by banks, military enterprises, state-owned and government agencies in 2020, according to Bloomberg. This means that instead of using American processors, operating systems, network equipment and servers, all companies in "high security" could be forced to use homegrown technology.

To curry favor with the government over this fundamental change, Cisco recently agreed to invest more than $ 10 million through the Development Committee of China and the Reformation in the coming years to improve technical education in schools, create jobs, fund R & D efforts, and attract investment in equities. The joint venture with Inspur is linked to this broad thrust.

In fiscal 2015, revenue from Cisco APJC region (Asia-Pacific China, Japan and) fell 2% year on year to $ 7.2 billion and accounted for 15% of its turnover. Revenue in China was reduced by 21% per year, offsetting the modest gains elsewhere. Unless Cisco can curry favor with the Chinese government while pushing cheaper Chinese rivals, these losses continue to overload your sales APJC

The associations are the preferred choice

China, usually favors more independent joint ventures with Chinese companies in the country expansions. This means that US companies should share their profits with Chinese companies, but also get the experience and significant tax benefits if local products are made in China.

In March, IBM (NYSE: IBM) has agreed to license its designs to semiconductor chips, servers and software for several high-tech companies, including Chinese Inspur.

Microsoft (NASDAQ: MSFT) has recently announced a partnership with Baidu (NASDAQ: BIDU) and private investment company Tsinghua Unigroup state to develop cloud computing technologies. This tripartite partnership was struck before the next release of Ubuntu Linux Chinese Kylin a well-developed operating system designed to replace Windows on government computers. Dell, which recently agreed to invest $ 125 billion in China over the next five years, Kylin will be installed in 40% of PCs sold in China.

These partnerships could help companies to avoid the fate of Qualcomm (Nasdaq: QCOM), which was hit by an antitrust fine of $ 975 million last year.