Are Cisco emerging market product sales in a free fall?

Cisco's first quarter emerging market product sales were down a stunning -35.2% vs. a gain of +40.7% the year before.

While it moved into 30 plus market adjacencies, did Cisco take its eye off the ball in emerging markets? Cisco CEO John Chambers appears to have admitted as much during the Cisco F1Q10 earnings call:

"You saw our numbers in emerging markets. The competition there on price is brutal and developed markets, we can usually -- are in the premium because of our ability to help them drive productivity and transform industries and emerging markets, it is a very tough price game and probably in hindsight if we had been a little bit more aggressive, we could have picked up more business there and I -- it’s a nice way of saying we will probably be more aggressive in the next quarter or two in emerging markets in terms of pricing."

Variance in percent of Cisco first quarter net product sales in emerging markets by fiscal year: 2009: -35.2% (page 47) 2008: +40.7% (page 39) 2007: +16.3% (page 32) 2006: +39.0% (page 37) 2005: +28.8% (page 38) Earlier this year I blogged that in my opinion Huawei would eat Cisco's lunch. It now appears I maybe correct.

This month Chambers made the following acknowledgement as well as claims about Huawei:

Speaking to reporters on Monday night, Chambers gave a similar message by making reference to China's biggest networking vendor. Cisco's strongest competitor in collaboration is Microsoft and in devices is Apple, he said. But in the big picture, "It's Huawei, Huawei and Huawei," Chambers said. The Chinese maker of wired and wireless infrastructure has used its relative cost advantage to make inroads in the developing world, though it has had less success so far in richer countries. Chambers also said Huawei has easier access to financing than its rivals through the Chinese government, its part owner.

Interestingly, Huawei's Chief Financial Officer contacted Network World to dispute the claims made by Chambers:

"I would like to address claims made about Huawei in your article 'Cisco showcases big bets on collaboration,' which are inaccurate and totally without foundation. Contrary to statements included in your article, Huawei is a company 100% owned by our employees and no government agency or other organizations hold any interest in our company. As a fellow employee, Mr. Ren Zhengfei, founder of Huawei, owns a 1.64% share. The credits granted to Huawei customers by a number of public and private sector financial institutions are export buyer credits provided directly to those customers as part of a normal financing transaction. As such, our customers are required to sign a contract directly with the banks as part of a standard commercial transaction, and it is our customers that will ultimately repay the loans. This is a common business practice in countries around the world, particularly within the telecommunications industry, and to assume otherwise is a blatant distortion of facts. It is a matter of public record that we release financial reports audited by KPMG each year. As such, we fully disclose our financial situation in these reports. In April 2010, we will issue Huawei’s 2009 financial report and I can assure you that it will be clear that our financing comes from normal commercial borrowings or our own revenues. Huawei’s success is based solely on our unwavering commitment to customer-centric innovation and to helping our customers realize business success. We will continue to work closely with our operator customers in our joint efforts to bring the benefits of modern telecommunications services to people around the world." Mr. Hua Liang Chief Financial Officer Huawei

What's your take, how important are emerging markets to Cisco's future?

Do you think Cisco can effectively compete against Huawei?

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