Cisco is losing money after being barred from business deals in China, the networking firm said yesterday as the US government banned Chinese tech firms, in seeming tit-for-tat moves in an intensifying trade war.
The US issued a formal, temporary ban against any government agency buying comms or surveillance equipment from certain Chinese companies on Tuesday. But this was because those Chinese companies were a risk to national security, it said in regulations enforcing the ban. Most notable among its suspects was the now infamous Chinese networking giant Huawei.
Chinese government agencies have likewise blocked US networking giant Cisco repeatedly since 2012, also citing security risks. Cisco CEO Chuck Robbins said on Wednesday it was now being blocked from Chinese government deals so often that its business had “dropped precipitously.”
“We definitely saw significant impact on our business in China as it relates to what's going over the trade war right now,” Robbins told investors in a conference call. Cisco’s business there dropped 25 percent in the last three months.
“In the state-owned enterprise, we're just being uninvited to bid. We're not being allowed to even participate anymore,” he said. “It was a much faster decline than we expected.”
He said Cisco had been selling infrastructure to large comms carriers in China for years, and that business had been declining anyway. But it dropped suddenly last quarter as well.
The fall amounted to no more than a fraction of Cisco’s worldwide sales - about $33m of $13.4bn according to DCD’s estimate. Yet Cisco still felt it, its executives said.
When China banned Cisco routers in 2012, it replaced them with those sold by Huawei. Then in 2014 it bumped Cisco off favored procurement lists after it was reported that the US National Security Agency had bugged equipment Cisco sold overseas. The US networking firm pledged to close such leaks quickly, and promised to invest $10bn in China. But Chinese tariffs followed, forcing it to raise prices nearly 10 percent and begin closing its manufacturing there.
The US ban this week stopped government agencies making Chinese equipment a “substantial or essential component" of their networks, when it had been supplied by either Huawei, ZTE, Hytera Communications, Hangzhou Hikvision Digital Technology or Dahua. But it did not force agencies to stop using such Chinese equipment altogether, or to dismantle significant networks they had already put in.
The US Federal Acquisition Regulatory Council issued the ban in regulations implementing a law the US Congress passed on August 13. It would stay in force till October 15, by which point agencies will been able to say what they think of it.
The US had already banned private companies from selling to Huawei. Huawei had evaded its sanctions against Iran, it said in May. It leveled similar trade sanctions against Chinese supercomputing companies including Sugon and Hygon.