Information Huawei: networking IC companies on front lines of burgeoning Cisco-Huawei rivalry

A drop-off in networking component sales to Cisco Systems and other North American OEMs has sent their suppliers rushing to China and is helping catapult Huawei to world prominence in networking gear.

The rapid rise of Huawei (pronounced WAH-way) and its bitter rivalry with Cisco have been the talk of the networking industry this summer. Huawei is China's largest telecom and datacom equipment supplier and has recently started shipping overseas, including through a Plano, Texas-based subsidiary called Future Wei. Analysts say Huawei routers are tough to distinguish from Cisco's in quality and performance, and Cisco is furiously trying to stop them.

Working in Huawei's favor is a legion of battered communications IC companies that has spent the last four years intensively developing network processors and optical speed-capable transceivers, framers and content addressable memories for Cisco to buy. But Cisco's once robust purchasing has since slowed to a crawl, triggered by a downturn in the communications market that also hit North American rivals Lucent and Nortel Networks.

That has played squarely into Huawei's hands. The embrace of China's largest networking OEM and the effect its lower prices will have on the world market for routers and other Internet protocol-based communications contracts is very significant, analysts say.The real issue is Huawei poses a very real threat to Cisco," said one top analyst who, like many other analysts and executives, requested anonymity "due to the sensitive nature of this topic."

Semiconductor companies that supply networking OEMs say Huawei's progress and drive to gain share in this market is something to behold.

"Huawei has made very, very strong progress," said Amit Banerjee, director of marketing for AMCC's framer products division. "They've grown up in this sheltered economy, and they are using that to their benefit. They've said, 'Why do we have to sell only in China? We can sell these things all over the world.'"

That's turned out to be unwelcome news at Cisco.

"Those two companies are competing heavily," Banerjee said. "I can tell you for sure there is no love lost there."

Meanwhile, Cisco isn't saying much--publicly, at least. "Cisco has a healthy respect for all of our competitors," said corporate spokeswoman Robyn Jenkins. She declined to comment further.

Executives and analysts familiar with the market and this rivalry believe Cisco currently is lobbying to see the United States put tariffs on Huawei systems. At the very least, Cisco CEO John Chambers seems to have at least one in" with the government. He traveled earlier this month to Crawford, Texas, to be a part of President Bush's media-friendly "economic summit."

"Perhaps Cisco's only trump card would be to get the U.S. government to slap a ridiculously high tariff on Huawei routers," said the analyst who sees Huawei as a real threat to Cisco. "Of course, to do so would hurt just about every American business except Cisco--from the service providers that have to pay outrageous prices to Cisco to the ASSP makers, such as AMCC--that are struggling since Cisco is all about internal development and grabbing every ounce of margin out of their boxes."

Michael Howard, optical networking analyst at Infonetics Research in San Jose, said from what he's seen, Cisco and others have reason to be defensive