Chapter 44 Section 3 Contenders

If Microsoft is good at turning its market advantage into a technological advantage, Cisco is the other way around. Through its own research and development and acquisitions, it turns its technological advantage into a market advantage.Although Wall Street regards Alcatel-Lucent and Canada's Nortel as Cisco's competitors, in fact, these two companies, which are known for their program-controlled switches, are not in the same field as Cisco, and basically cannot threaten Cisco.And Cisco's market value exceeds the sum of other traditional communication equipment companies. Cisco's real competitors are only one fake and one real.Let's look at the fake one first - Juniper Networks.This company is basically a shadow company of Cisco, which is equivalent to AMD's status to Intel. Juniper's product positioning is high-end, unlike Cisco, which does everything from small IP phones to high-end routers.Although Juniper is the company most similar to Cisco in terms of products, its turnover is only 7% of Cisco's, which was 2.5 billion and 35 billion US dollars in 2006, respectively.This is after Juniper acquired Netscreen, a similarly large firewall maker, and its market value is now less than 5% of Cisco's, at $8 billion and $190 billion, respectively.Cisco kept this competitor mainly out of antitrust considerations.Because of Juniper, Cisco has saved a lot of trouble caused by antitrust laws.Moreover, many government departments and large companies in the United States require that they must be selected from more than two manufacturers when purchasing. Therefore, Cisco must allow the existence of Juniper in order to do business.Otherwise, with the cash on Cisco's hands, Juniper can be bought three times.Although Juniper claims that the reason for its existence is good technology, it has not grown faster than Cisco in recent years, so the deeper reason is that Cisco must let it go.

Cisco's real rival is China's little brother, Huawei.As a representative of China's national industry, Huawei is almost a household name in China, although most people don't care about the router products it makes.Therefore, there is no need to repeat Huawei's story and successful experience here.As a private company, although Huawei has received some help from the government, it has set a high starting point for its development and relied on the high efficiency of private companies and the hard work of its employees.Huawei was established four years later than Cisco and eight years earlier than Juniper.When Huawei was founded, the starting point was very high. At that time, some research institutes under the Ministry of Posts and Telecommunications were still discussing the transfer and cooperation of second-rate technology with multinational companies such as AT&T. Ren Zhengfei directly positioned the most advanced technology in the world at that time, and developed it in just a few years. Produced the 08 program-controlled exchange with international advanced level at that time. In 2006, Huawei's sales reached 65 billion yuan, about 9 billion US dollars, twice that of Juniper.It is worth mentioning that two-thirds of Huawei's sales come from overseas, which is very different from the inflated real estate sales due to the bubble economy, because the former is a real performance.Therefore, Huawei has become Cisco's main competitor in the world.

Although Huawei's current market share is only a quarter of Cisco's in terms of turnover, its future is limitless.This is not only because Huawei is developing faster than Cisco, but more importantly, Huawei has dragged Cisco into the shadow of the "Made in China" effect, which the latter is extremely unwilling to do.We will discuss the effect of "Made in China" in the future.Its basic impact is that when a product that can only be produced in the United States and Europe, after a period of time, it can transition to Japan and South Korea, and then settle in China.The time for American and European companies to make money is only the time between the United States and China. In the past, this period could last for decades, but now it is only a few years.Once a product can be made in China, its profit margins will be so thin that American and European companies will withdraw from the market.Now, the competition between Cisco and Huawei is under this shadow.Because Huawei can already produce low-end network equipment that is comparable to Cisco but much cheaper, the profits of Cisco's corresponding products have been capped by Huawei.Cisco has a problem similar to that of IBM. Although some departments have a higher gross profit rate than the entire industry, they become loss-making departments after deducting R&D, marketing and management expenses.Under pressure from Wall Street, it had to drop these low-margin products.Of course, Cisco's advantages in high-end products and new products cannot be compared with Huawei in the short term. However, if a company only has high-end products left, then it can no longer become a monopoly in the entire industry.

To Cisco's annoyance, Huawei, a "little company," is catching up to itself surprisingly quickly, largely because Huawei is far more nimble than Cisco.At Cisco, every process of a product from project approval, design, development to testing and then to the market is strict and complicated, while Huawei is much simpler.This phenomenon not only exists in the competition between Cisco and Huawei, but also in the competition between many multinational companies and local Chinese companies, including in the Internet industry.It is reasonable for multinational companies to adopt a relatively conservative strategy. They only need to develop faster than other multinational companies, but they must not make mistakes. In this way, Wall Street is most satisfied.However, when they encounter companies that do not play their cards according to the rules, they used to be Japanese, but now they are Chinese companies, and they seem to be unable to keep up.

Huawei may be the only company in China that can compete with the world's industry leaders in the IT industry at present. This is largely because Huawei has no difference in company structure and operation from listed companies in the United States and Europe. At the same time, Huawei has a great commander-in-chief Ren Zhengfei .Ren Zhengfei, as a creator and giant (Builder and Titan) was named as one of the 100 most influential people in the world by Time Magazine in 2005.It is not only the only person in China who is on the list as a creator and giant, but also one of the few people in the world except the United States.The only thing Huawei should pay attention to is to avoid the fate of Asian family companies from prosperity to decline.

Of course, it is impossible for Huawei to shake the foundation of Cisco in the near future.In the past two years, thanks to the rise of Internet companies, sales have stepped out of the bottom in 2001 and soared.Here again we see the Andy Beer theorem in action.In the Internet industry, service companies such as Google and Yahoo will start first, and then drive the performance of network equipment companies.From the perspective of stock performance, from 2003 to last year, Google's stock took the lead in growth, while Cisco and Juniper lagged behind and began to recover from last year.We can see from the figure that Cisco's stock trend is in line with Google's very well.

In contrast, Cisco and the traditional telecommunications industry do not fit well.The chart below is a comparison of the stock trends of Cisco and the telecommunications giant Verizon At present, the development of the Internet is still in its infancy. As long as Cisco does not do stupid things, it will be able to ride the wave of the second revolution of the Internet to develop smoothly in the next few years.But what about the future?