Tomahawk, WI 12/18/2013 (BasicsMedia) – Cisco Systems, Inc. (NASDAQ:CSCO) designs and sells networking equipment which include switches and routers. It sells these products to governments, companies and individuals. It was once the monopoly in the industry until Chinese company Huawei started penetrating its market with cheap devices.

Cisco Systems, Inc. (NASDAQ:CSCO) offers the best networking solutions in both hardware and software. It also has a hand in cloud computing services. Regardless of its superior networking technology, the company is facing growing competition from companies offering cheap networking equipment.

The fact that Cisco Systems, Inc. (NASDAQ:CSCO) sells its products at premium prices is also hurting its business especially in markets where buyers are sensitive to price. This challenge has been eating into its opportunities until the company reported below expectation in the most recent quarter. Furthermore, it also issued a warning to investors that its loss of revenue was likely to continue into the next two or three quarters.

It is usual for companies to issue warning shots when they think that the environment they are operating in is not conducive. However, for CSCO, the challenges are real and serious.

Sales decline in China

Cisco Systems, Inc. (NASDAQ:CSCO) once considered China one of its key markets. China was always going to overtake the U.S. as the world’s largest market and CSCO’s CEO John Chambers did not want to miss the opportunity. Chambers continued pumping money in China even as the board questions his rational. However, there is now very little to show for all the billions of dollar invested in China.

The alleged spying by U.S. security has also complicated issues for CSCO in China. The problem is so big that telecoms operators in China are reported to be replacing their Cisco-based networking infrastructure with equipment provided by local companies such as Huawei and ZTE Corp.

Cisco Systems, Inc. (NASDAQ:CSCO) appears to be herding cats on how to deal with the declining sales in China. It recently only fired a shot that all along, China has just contributed about 5 percent of its total revenue. This statement was meant to downplay the challenge in China. However, this argument seems to be far from the reality.

It remains to be seen how CSCO navigates the maze that is China, but one thing that is for sure is that a lot has changed in the market.

Clients turning into competitors

Cisco Systems, Inc. (NASDAQ:CSCO)’s equipments are the networking backbone of Internet tech companies such as Facebook Inc (NASDAQ:FB), Microsoft Corp (NASDAQ:MSFT), Google Inc (NASDAQ:GOOG) and Amazon.com Inc (NASDAQ:AMZN).

However, there is a growing change of heart among these CSCO clients. They have started developing their own networking solutions and replacing Cisco-based hardware from their data centers.

The reasons are plenty but the most obvious ones is that it is expensive to run on CSCO hardware. The cost is considered in terms of acquisition and maintenance. Also, there is growing need by these companies to control their network infrastructure.

The issue of security around the Internet platforms is also pushing these clients to invest in their own systems that would make it hard for infiltration. In the process, Cisco Systems, Inc. (NASDAQ:CSCO) is losing business and it is not known how it is going to deal with these challenges.

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