Huawei Gearing up to Take on Cisco on Its Home Turf

May 12, 2012 03:10 AM EDT

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(Reuters) - Huawei's head of research and development in North America said his company is more than ready to take on larger rival Cisco Systems but noted it will take some patience -- and time.

"The U.S. is by far our most complex market ... for us our entrance into the U.S. is similar to a western company entering China," John Roese said in an interview with Reuters on the sidelines of IT infrastructure conference Interop in Las Vegas.

For a decade, China-based Huawei with U.S. headquarters in Plano, Texas, has been selling infrastructure to U.S. telecom operators. It sells routers and switches that move data through networks and devices such as modems and smartphones, but now it aims to provide equipment to large businesses, a market dominated by Cisco Systems.

Huawei in September of last year launched its enterprise unit and aims to generate $15 billion worldwide in revenue by 2015. This year it sees deals totaling more than $7 billion worldwide and expects to invest $4.5 billion in research and development.

The enterprise unit provides equipment such as hubs, routers and switches that run networks transferring data across corporations.

"We basically said it will take a few years to get to critical mass but the U.S. is not critical to our revenue objective," Roese said.

Huawei's enterprise unit revenue rose 57.1 percent in 2011 to 9.16 billion yuan ($1.45 billion), making it the fastest growing division though it contributes only 4.5 percent of total revenue.

Roese, a technology veteran who has worked at Nortel, Broadcom, Enterasys and Cabletron, said the company had not publicly set any financial goals for the U.S. market but he made it clear that Huawei has what it takes to be a formidable rival to Cisco in the United States.

Cisco is the world's leading maker of networking gear.

"There really has not been a legitimate major competitor for Cisco for a long time ... and in comes Huawei and we are not a small player," Roese said.

Cisco's Chief Executive John Chambers has repeatedly called Huawei its toughest rival in the enterprise market and promised to be compete aggressively.

In 2003, Cisco sued Huawei for allegedly infringing on some of its patents. Huawei removed the contested parts and the case was dropped.

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Cisco's executive vice president Rob Lloyd implied that Huawei was still imitating and not innovating and questioned its security credentials:

"We clearly know that our customers view innovation from Cisco and they don't see the same from Huawei. We would clearly say that imitation isn't innovation," Lloyd said on the company's earnings call this past Tuesday.

"The privacy of information, how data is protected is forefront in our customers' mind in a cloud centric world. That's not the forte of Huawei," Lloyd also said.

Roese shrugged off the comments.

"If they want to declare us public enemy No 1 and their biggest threat, I am glad to take that compliment," Roese said, adding that currently Huawei was still too small a player in the U.S. to compete with Cisco.

But it's certainly gearing up to take on Cisco.

Huawei this week announced its first U.S. distribution agreement with IT-distributor Synnex that will allow it to expand its presence in the U.S. enterprise market

It is also launching new products that compete with Cisco's telepresence offerings and network switches.

Still, the United States has been a difficult market for Huawei to crack as some U.S. politicians are wary of the company's secretive founder and Chief Executive Ren Zhengfei, a former Chinese military officer. There are also concerns regarding the security of its hardware.

Roese said Huawei was currently not doing business with the U.S. federal government or the financial services market.

"We have to get a few things behind us before we can sell to the federal government," Roese said.

Huawei has been at pains to overcome national security concerns in the U.S. and was dealt a fresh blow this week when the House of Representatives Armed Services Committee adopted legislation that included a measure to root out any technology produced by Huawei in the United States nuclear weapons complex.

Roese added that it did not have the necessary distribution channels needed to serve the financial services industry yet.

The company is focused on supplying businesses in the health care industry and education sector with its products such as telepresence equipment and data center switches, Roese said.

"We are definitely in a building phase and we are very patient," Roese said and quipped that thanks to Cisco the company was at least getting some free advertisement.

"I joke that our biggest ally in educating people who we are has been Mr. Chambers. He has done a fantastic job teaching people how to pronounce our name."

($1 = 6.3106 Chinese yuan)