Parsing Hurd’s Words

HP CEO Mark Hurd is heralded for his operational rigor, for running a tight ship, for tuning the corporate engine to run on all cylinders, and for cutting costs wherever savings can be found.

He might even be proficient at the “vision thing” and strategy. That said, I often find his public pronouncements ambiguous and opaque. At times, it’s very difficult to tell what message he’s trying to convey, which is probably why other members of the executive team often get assigned to the analyst briefings and media roadshows.

As a case in point, I want to feature a comment Hurd made in his keynote Tuesday at HP’s Americas Partner conference. Here it is:

“You’ve probably heard speeches that the world will revolve around the network. Well, go and check their profit and loss, I’m going to bet their business revolves around the network. I’m suspicious of anyone that says their intellectual property will dominate, because I don’t think that’s how it’s going to work. We’ll need to be prepared to mix and match capabilities based on business needs, and we’ll need the intellectual property and capability to adjust.”

I think I get the general gist of Hurd’s statement, but I’m not entirely sure. Obviously he’s attacking the networkcentricity of Cisco. Beyond that, though, I’m not sure what he’s saying.

Is he suggesting that HP believes the network isn’t that important, that’s it’s just another piece of the puzzle in the age of virtualized, cloud-based data centers? If so, he doesn’t fully make the case. Then again, maybe he’s saying that systems integration, supported by breadth and depth of technology IP, will be the key to success? Again, we can only speculate.

An operational perfectionist who pushes himself and his company to ever-higher levels of statistical efficiency, Hurd is a strangely enigmatic communicator.

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What’s Behind Microsoft’s Patent-Licensing Deal with HTC?

Jared Newman of PC World expounds on two possible scenarios behind Microsoft’s agreement to license unspecified patents to handset vendor HTC for use with that company’s Android-based smartphones.

Quoting directly from Newman’s article:

Here are two possible scenarios behind the HTC-Microsoft agreement:

The first is a conservative view. HTC’s phones may infringe on Microsoft patents. Rather than engage in two legal battles at once, HTC quickly agreed to license Microsoft’s patents before Redmond went after it. This spares HTC from another attack in court, while giving Microsoft a sort of insurance plan on HTC’s increasingly popular Android phones along with securing royalties.

The second possibility is more intriguing. Microsoft is throwing HTC a life preserver, letting the phone maker use Microsoft patents as a way to fend off Apple and its iPhone. I see it as an escape plan if HTC’s case against Apple goes south. If the possibility of a court-ordered injunction against HTC Android phones becomes real, HTC could simply say it’s using Microsoft’s patents instead, adjusting the design of its phones accordingly. This assumes that there’s overlap between Apple’s and Microsoft’s smartphone patents, and we don’t know because Microsoft didn’t get into details.

There is a third scenario, though, and it was mentioned in an IDG News Service item that quoted Francisco Jeronimo, an IDC research manager. To wit:

The fact that HTC, Samsung and Sony Ericsson also make Windows phones may make any discussions with Microsoft easier to resolve, according to Francisco Jeronimo, research manager at IDC. He said he wouldn’t be surprised if the vendors can get discounts related to how they are going to push devices based on Windows Phone 7.

Indeed, I think we have a winner.

While HTC can expect no mercy from Apple and its patent lawyers regarding alleged infringements occasioned by the former’s Google Android handsets, Microsoft is a different beast entirely. As I’ve said before, Google stands to make its mobile-platform gains at Microsoft’s expense, not at Apple’s. That’s because Google and Microsoft both count on patronage from handset vendors that license their mobile operating systems. Apple, as a vertically integrated player (providing operating system, handset, and online applications and content) doesn’t need handset vendors. It is its own handset vendor.

Consequently, Microsoft and Google are direct mobile competitors in a way that neither competes against Apple. In the battle between Microsoft and Google for the affections of handset vendors, it’s a zero-sum game. If a handset vendor, such as Motorola, defects from Microsoft to the Google camp, that’s lost business for Microsoft, and a lost service conduit to consumers.

What’s Microsoft to do? Some of the handset vendors — HTC, Samsung, Sony Ericsson — are hedging their bets, with feet in both camps. Microsoft wants to keep their business. To do so, it will be inclined to use every instrument and mechanism at its disposal, carrots and sticks. The threat of patent-infringement lawsuits might be a compelling stick to wield, just as sweet deals on patent licensing, with certain strings attached, might represent a tasty carrot.

It isn’t difficult to envision a Microsoft negotiating team making the following pitch to HTC: “You’re infringing on our patents with those Android-based handsets, and we intend to rectify the situation. Rather than pursue litigation that nobody wants, we’re willing to give you a great licensing deal . . . on the condition that you continue to develop and effectively market Microsoft-based handsets. What do you think?”

That’s the basic outline, anyway. The specifics of the deal might look a little different, but the essential idea is that Microsoft uses patents and litigation as bargaining chips to keep handset vendors in the Windows Phone 7 Series stable.

China’s New Encryption Rules Favor Homegrown Vendors

As if to illustrate the point I made in my earlier post today about China’s far-reaching industrial strategy in the technology sector, the Wall Street Journal reports that Cisco will be among the companies affected by new rules that will require vendors of six categories of technology products — including smart cards, firewalls, and routers — to disclose encryption codes to Chinese authorities as a certification precondition for sales to government accounts.

As the WSJ reports, encryption codes are closely guarded by technology vendors for both competitive and security reasons. Although the product categories covered by the new encryption rules account for, at most, hundreds of millions of dollars in sales to the Chinese government — a small fraction of what China’s government spends on technology — the dispute is the latest flashpoint between China and foreign technology companies.

Quoting from the article:

Industry observers who follow the issue say that the regulation appears to be part of a broader effort by Beijing to promote domestic enterprises. Foreign executives say such regulations make it increasingly difficult for foreign companies to compete fairly in one of the world’s most important markets.

Assuming Cisco does not acquiesce to the new rules, it would be one of the companies most affected. Cisco has declined to comment on the matter.

The WSJ reports that, as of last night, a government list of companies certified under the new rules included — surprise! — only Chinese companies. Foremost among those companies was Huawei and Leadsec Technologies Co., an Internet-security subsidiary of Lenovo Group Ltd.

Understanding Implications of China’s Technology Ambitions

Today I want to expand on ideas I have presented previously. I think these concepts, relating to China’s industrial strategy for its technology sector, are important for readers to understand and internalize. Eventually, they will affect most o us, one way or another.

I’ve written often about how the Western companies seeking to sell their products in China confront a genuine dilemma. They really must choose between two outcomes that are likely to be undesirable: They can enter the Chinese market at the risk of losing intellectual property and long-term competitive advantage, or they can refrain from playing in China, perhaps retaining their IP and competitive advantage in other markets but surrendering short-term gains in China to others.

In the end, no matter what path they take, they still might find themselves threatened on the global stage by vendors from China.

Most public companies, with institutional investors breathing down their necks, will plunge headlong into China for the near-term pop. Most of these companies, facing quarterly pressures to deliver results, will not consider, or will choose to studiously ignore, the long-term implications of their decision to play in China by China’s rules. In their minds, they have no choice but to play the game. They don’t want to explain to shareholders why they aren’t chasing what is ostensibly the biggest technology growth market in the world.

Other companies, admittedly in the minority, will choose not to play in China or will limit their exposure there. In limiting their exposure, they’ll also limit their near-term gains, but they’ll also keep most of their core IP and have a better chance of holding off Chinese technology competitors when those players seek hegemony beyond their home base.

And make no mistake: China is pursuing nationalist mercantilism as industrial strategy for its technology sector. China aspirations for the technology sector aren’t limited to its current stereotype as the world’s low-cost manufacturer of consumer electronics, computers, and networking gear. For China, development of its technology sector — encompassing cleantech as well as strategic aspects of information technology and communications — is integral to its long-term economic, industrial, political, and social stability.

China goal isn’t to let Google, Cisco, HP, Applied Materials, Microsoft, Apple, and Nokia boost their stock prices on Chinese’s sales. Instead, China wishes to create its own Google, Ciscos, Applied Materials. And China has created an industrial policy, within the framework of a concept called “indigenous innovation,” to achieve that goal.

Toward that end, China not only promotes companies, such as Huawei, that it wants to grow into world leaders, but it also develops a regulatory structure that inhibits and restricts that gains that foreign companies can make on its soil. In this respect, the aim is to ensure that Chinese companies dominate China’s markets, as Baidu did against Google, and as Huawei is doing against HP and Cisco.

With is “China Out” strategy, 3Com’s H3C master plan was not dissimilar from the national technology blueprint of China itself. There are differences, of course. 3Com is but one company, and it’s less Chinese now, after being bought by HP, than it was before, as an entity that grew from 3Com’s joint venture with Huawei. What’s more, 3Com has less power and fewer resources at its disposal. It essentially wanted to win early customers with low-cost, good-quality products in China, then use economies of scale and aggressive pricing to capture market share elsewhere.

China wants to do essentially the same thing for its technology companies, but it has tremendous power, influence, and resources at its disposal. It can use regulations, policies, and prohibitions to condition the result it desires. It can make life easier for indigenous companies while making life much harder for Western firms operating on Chinese soil. It can devise and enforce rules that require Western companies to disclose intellectual property or other trade secrets as conditions of selling products or winning accounts in the country. It can, and does, establish intellectual-property laws that favor the home side.

I think it’s critical for denizens of the technology industry to fully appreciate what China is trying to achieve. This is not business as usual.

Has Google Picked the Wrong Fights?

An article at CNBC.com notes that Google shares are on the verge of falling to a key technical support level, presaging a further decline in value of as much as six percent. Traders say the wonky share chart stems from Google’s decision to battle against three adversaries: China, Microsoft, and Steve Jobs’ Apple.

Well, if that’s the presumed chain of causation, I’m not buying it.

On the search front, Google has managed to hold off Microsoft without much difficulty, and it seems to be well placed to poach some, if not most, of Microsoft licensees of mobile operating systems. It also is strongly positioned against Microsoft in mobile search and advertising, while trying to encroach on Microsoft’s Office franchise with its cloud-based Google Apps.

On the whole, I’d say Microsoft has felt more pressure from Google than vice versa. That dynamic probably won’t change, at least in the near term.

Apple and Google do compete in the mobile space, with Google’s Android smartphone platform pitted against Apple’s iPhone powerhouse. Google is the upstart, and Apple is the acknowledged power; but anything Google derives form mobile will represent a relatively new revenue stream, and if it is successful in courting handset licensees for its Android operating system, its gains will come at Microsoft’s expense, not Apple’s. People generally make too much of the presumed Apple-versus-Google cage match in the mobile space. The fact is, the market is big enough and varied enough to accommodate both players.

Finally, there’s the China issue. Said Jon Najarian, co-founder of OptionMonster.com and TradeMonster.com:

“The decision to leave the China market is akin to ‘New Coke.’ They owned the search market and then they blinked.”

No, no, no, Jon. Windows Vista was the New Coke of operating systems, but I fail to see the aptness of the analogy for what happened with Google in China. That was a far more complicated situation, which I have covered at length previously.

What’s important to remember about Google in China is that Google wasn’t the market leader in that country, and it had little likelihood of ever becoming the leader. Revenue from China was a small part of Google’s business, and — despite the size of China’s Internet market — Google was unlikely to ever see search market share over there on anything approaching the same scale as what it achieves in North America, Europe, and most other jurisdictions.

China plays by different rules, and Google concluded that the country’s glittering market prize would always remain just out of reach, with China’s government tilting the table just enough to ensure that Chinese vendors would win the game while benefiting, in various ways, from Google’s continued presence in the country.

Google could have stayed, it could have carved out a measure of business in China. But the company concluded that the candle wasn’t worth the game, that the dangers and risks of continuing in China under the status quo (or worse) outweighed the likely benefits.

As hard as it might be for some people to get their heads around the idea, Google’s decision to leave China was a business decision at least as much as it was an ethical choice. Depending on what happens to other American technology companies who stay in China, we might well look back and say Google made the right decision, all things considered.

Palm Tries to Bluff, but It’s Too Late

In the latest rumor du jour, Lenovo is cited by Reuters as a potential acquirer of Palm. It really does seen the menu changes daily, and if you’re having trouble keeping up with the Palm-takeover speculation, feel free to join the bemused club.

Palm’s sales agents, Goldman Sachs and Frank Quatrrone’s Qatalyst Partners, have conducted themselves with all the discretion and subtlety of carnival barkers. It’s clear that their contrived, heavy-handed tactics — including a seemingly endless succession of leaks to the business press — have failed. If anything, Palm is in a worse situation today than when the investment bankers set up their medicine-show sales tent on the M&A midway.

One after another, like too-obvious suspects in a creaking murder-mystery potboiler, Palm’s rumored acquirers have removed themselves from suspicion, apparently miffed and a little mortified at having been used as plot decoys.

So now it’s down to Lenovo. Before that, companies suggested to have an acquisitive interest in Palm included Dell, Microsoft, Nokia, Google, RIM, Apple, HP, and Motorola. Then, the focus shifted to China and Taiwan, where Huawei and HTC were drafted into the action. Nobody went for the bait — not seriously enough, anyway.

I thought ZTE might be tempted to take a look, but its chairman told Reuters it was not approached by Palm or its agents. Maybe Palm and its agents that ZTE would step from the shadows and declare its interest.

Nonetheless, Palm, distressed and capsizing, is asking too high a price. The company’s advisers (investment bankers) were said to be seeking $1.2 billion for the company. It’s difficult to envision any of the dwindling prospective buyers paying anywhere near that price.

As a result of tepid buyer interest, Palm now is making sounds about staying the course as an independent entity. The company says it could get out of hardware and license its WebOS platform to handset vendors, along the lines of Google with Android and Microsoft with Windows Phone 7 Series or whatever else it decides to sell.

Palm isn’t serious, though. That move wouldn’t make much business sense, not with licensing as its exclusive business model, and not against two well-heeled players who utilize their mobile platforms as vehicles for bigger business ambitions.

Alas, Palm is bluffing when it says ti could just walk away from the M&A table. The problem is, it’s too late to bluff when all your cards are on the table, their faces fully exposed.

With Release of Chassis Switch, Arista Makes Smooth Progress

Earlier this week, Arista Networks announced its first chassis switch, the Arista 7500, a modular 10-GbE box that the company says provides greater price-performance, higher port density, and better energy efficiency than competing products from Cisco, Extreme Networks, and others.

As you’d expect from a company teeming with savvy industry veterans, the product announcement was executed with exceptional aplomb, drawing press and analyst coverage that was extensive and, for the past, favorable. The product’s data sheet is impressive, and Arista’s marketing claims regarding the switch’s performance metrics and specifications are supported by benchmark tests conducted by EANTC.

Arista’s flagship switch, the 7500 will have to live up to its considerable promise. Self-funded by the company’s accomplished and illustrious founders, whom I have written about at length previously, Arista needs to grow its customer base and to continue to scale its revenue if it is to justify an eye-popping IPO or similarly majestic strategic exit. One of those outcomes must be the end game, because the principals at Arista would not be content with half measures.

According to CEO Jayshree Ullal, the company has 300 customers in more than 25 countries. As reported by HPCwire, about 30 percent of Arista’s customers are financial institutions involved in high-frequency trading. Other customers can be found in the oil-and-gas industry, universities, the US government (energy and defense), Web 2.0 data centers, and at hosting/cloud-computing providers.

The first customers for the 7500 are said to include the Howard Hughes Medical Institute, the San Diego Super Computer Center (SDSC), and an unnamed U.S. Department of Energy (DOE) laboratory.

If the the performance of 10-GbE chip vendors is a reliable barometer, the 10-GbE switching space has yet to fire on all cylinders. That could change, particularly as the industry shifts from the client-server, corporate-IT model to one emphasizing the merits of virtualization and cloud computing. Arista, from the hardware design of its products to the EOS network operating system that powers them, is purpose built to capitalize on the transition to cloud computing.

What Arista is doing today is analogous to what Cisco did in the early days of enterprise switching. One can perceive essentially the same strategic blueprint, marketing game plan, and emphasis on a few key points of competitive differentiation that Cisco exploited successfully back in the 1990s. But Cisco is not as nimble now as it was then, and Arista is counting on Cisco to demonstrate battleship-slow agility in responding to shifting market dynamics, changing technical requirements, and looming competitive threats.

Cisco, of course, has a lot distractions, chasing countless market adjacencies horizontally, vertically, and geographically.

Arista has bought the right groceries, is working from a proven recipe, and has star chefs in its kitchen. If customers buy what it’s serving, the company will be well on the way to achieving its goals.

Resisting Facebook’s f8

So, Facebook is opening its f8 developer conference today, and there’s some debate regarding how one should pronounce the event’s title.

Some say the pronunciation should be two syllables, as in the letter F and the number 8. Others, though, suggest that the pronunciation should be “fate,” as in the word denoting ” the development of events beyond a person’s control, regarded as determined by a supernatural power.”

Well, there are some big egos at Facebook, and I would imagine the reality-distortion fields in the company’s boardrooms and hallways have the power to scramble logical thinking and to engender delusions of grandeur. Facebook might actually believe that it is fated to conquer the world, or a least that portion of it that exists online.

Lately much debate has ensued about whether Facebook will render Twitter irrelevant. Like many others, I don’t see a close similarity between the two companies, the online services they offer, their subscriber demographics, or even their current business models. Given Facebook’s prodigious user base, however, there obviously is overlap between its subscribers and Twitter’s.

But the services themselves are very different. From my perspective, Twitter is about communication and information sharing. Facebook, though I haven’t been on it for a long time, seems to be about frivolity, triviality, a veritable online water cooler. It’s designed to be a place where people go for distractions, like television but more interactive.

That’s not surprising because Facebook’s real purposes is to serve as a giant consumer-analytics engine for advertisers. To the extent that it can cover the web, sucking information about what and where its subscribers do in their online existence, Facebook stands to make a lot of money.

But there’s not much to Facebook beyond that. It’s trying to transform its subscribers into an enormous database of likes and dislikes that can be segmented and sold to corporate marketers and advertisers. That’s always been Facebook’s game — as I’ve said here for a long time — and that’s why consumer and customer privacy just isn’t a priority for Facebook.

I’ve always enjoyed the delicious irony that Facebook originated at Harvard University. An institution renowned for erudition and scholarly achievement has produced a commercial entity that does its utmost to culturally impoverish the Internet, and to turn its subscribers into nothing more than data points for advertising campaigns.

Facebook is so malevolently vacuous that it reminds me of the corporate fascism depicted in RoboCop. Facebook is the online manifestation of Omni Consumer Products (OCP), the movie’s fictional, omnipresent megacorporation. Facebook probably would like nothing more than to have its subscribers function solely as consumers, focused only on their likes of dislikes of products and services that advertisers want them to buy.

Like the lecherous huckster in RoboCop who kept repeating the phrase” Ill buy that for a dollar!,” Facebook will try continually to dumb down and commercially condition online communication and interaction.

But I’m not buying what it’s selling, not for a dollar or for any other amount.

HP Networking Opts for Roadmap Expediency

Despite HP’s protestations to the contrary, overlaps exist between its erstwhile HP ProCurve switching portfolio and some of the products the company has obtained through its acquisition of 3Com.

Still, as Gartner analyst Mark Fabbi observed astutely, HP doesn’t gain anything by alienating its native or inherited installed bases of customers by telling them the products they bought or are considering for purchase are destined for oblivion. As such, the official word from HP, is “anything that’s offered today will be offered as long as customers want it and want to buy it.”

Those were the words of Dave Donatelli, the executive vice president and general manager of HP’s enterprise servers, storage and networking division (ESSN). He meant them, too, at least until further notice.

HP Networking is trying hard to portray itself as the vendor who will keep Cisco honest by giving enterprise customers a viable competitive alternative to (and pricing leverage against) the data-networking superpower. It doesn’t want to spoil that effect by creatively destroying its own product portfolio immediately after the acquisition of 3Com has become official.

No, there’s plenty of time for the axe to fall on redundant products, and HP would rather that sort of thing occur beyond the range of prying eyes. Those matters are deal with discreetly, quietly, not at ebullient press conferences.

Besides, with a Citigroup survey of American and European CIOs suggesting that networking gear is a top priority for enterprise IT expenditures, HP is particularly disinclined to inhibit near-term customer demand. As Larry Dignan writes at ZDNet:

Indeed, 44 percent of CIOs expect to spend more money with Cisco. Just 16 percent of CIOs planned to increase spending on HP ProCurve gear. Citi analysts noted that CIOs may have been waiting to see HP’s 3Com integration plans.

The timing clearly isn’t right for a product and engineering cull at the shop formerly known at HP ProCurve. Nonetheless, one can reasonably deduce that when the organizational restructuring does come down, 3Com’s gear and personnel are likely to fare better in the aftermath.

3Com-Fortified HP Raids Cisco Sales Staff

In a post earlier today, I mentioned that HP, with 3Com now in the fold, understands that it must bolster the quality and quantity of its field-sales team if it hopes to compete effectively against Cisco Systems.

HP is doing more than thinking and talking about it. According to sources familiar with the situation, HP is working aggressively to enlist Cisco account managers, systems engineers, and network-solutions architects in markets worldwide.

Apparently, Cisco is aware of HP’s poaching raids and is doing what it can to repel them. I have been told that Cisco CEO John Chambers has taken a personal and professional interest in HP’s personnel-related incursions. Apparently he has enjoined his VPs and their managers to do everything possible to blunt HP’s poaching raids.

While trying to frustrate HP’s efforts to seduce its employees, Cisco evidently is mounting raids of its own on field-sales staff at Juniper, IBM, and others. In other words, it’s a good (or, at least, better) time to be a networking sales representative. Demand is up, and quality supply seemingly is at a premium.

Until taking over 3Com, HP and its HP ProCurve unit sold networking gear through its channel partners, obviating the need for an extensive direct-sales force. Now, though, with 3Com on board, HP is changing tack.

The change has implications not only for Cisco, which is having to fend off HP’s poaching forays, but potentially for HP ProCurve channel partners, who will want to gain a clear understanding of the new lines of demarcation between what they do and what HP does.

H3C to Continue After HP’s 3Com Integration

Now that 3Com’ has been fully and legally acquired by HP, the latter is working urgently to integrate the former and to streamline operations and field-sales efforts.

According to sources familiar with the situation, 3Com’s U.S. operations will be integrated into HP by the end of this month. The remainder of 3Com’s worldwide operations are expected to be subsumed within HP by early June, though labor laws and regulations could slow the process in some countries.

For an unspecified period, 3Com’s H3C unit will retain its name and corporate identify in China, Hong Kong, and Macau. Some rumors suggest H3C will continue to operate as a standalone entity for two years.

Shusheng Zheng, an executive VP at 3Com and CEO and COO of H3C, apparently will lead sales efforts in H3C’s territories, and he will also retain responsibility for a significant portion of H3C’s research and development in China.

Last week, an all-hands integration meeting was hosted at 3Com’s worldwide headquarters in Marlborough, Mass., by Ron Sege, 3Com’s chief operating officer, and Marius Haas, HP Networking’s senior vice president and general manager.

While 3Com’s engineering staff in China are likely to see little change in their roles and responsibilities, 3Com’s executive team in Marlborough anticipates a different fate. Some personnel at 3Com’s headquarters might receive favorable transition offers, but many others will not be required after the handover is complete. Some 3Com executives had the foresight to design rich acquisition-triggered severance provisions (also known as “golden parachutes”) into their employment contracts with 3Com. As such, they stand to do rather well even if HP cannot find a place for them.

At the all-hands-meeting, Haas apparently conceded that HP must develop a stronger enterprise-networking sales team to compete effectively against Cisco Systems. HP is said to espouse an ambitious five-year plan to topple Cisco as the market-share leader in enterprise networking. Insiders say HP believes the seemingly grandiose goal is realistic.

Cisco’s China Ambitions Likely to be Thwarted

In a recent story in the Ottawa Citizen about Huawei establishing an R&D center in Canada’s capital city, journalist Bert Hill mentioned in passing that the Chinese telecommunications-equipment vendor played no small part in the evisceration and ultimate demise of Nortel Networks, Ottawa’s one-time technology kingpin.

Make no mistake, Nortel had enormous self-destructive tendencies, and it did its worst to expedite its decline and fall. From accounting scandals to delusional and dissolute acquisitions, to ever-shifting product strategies — well, Nortel was on a decade-long, self-harm binge of epic proportions. It was bound to end badly.

Still, there’s truth to what Hill wrote. Huawei, with its standards-based, low-cost, and steadily improving telecommunication gear was a fearsome competitor, one that a chronically mismanaged Nortel was woefully incapable of countering.

In no way will I insult Cisco by comparing it with Nortel, nor will I suggest that Huawei will contribute to the irrevocable decline of Cisco. Nonetheless, despite what’s been written lately about HP-3Com and Juniper, Huawei represents the most serious threat to Cisco’s global hegemony.

Cisco knows it, too. In a press conference last fall, Cisco CEO John Chambers, when asked to cite competitors, considered the big picture and said: “It’s Huawei, Huawei and Huawei.”

That’s not to belittle or denigrate Cisco’s other rivals, who are seeking to capitalize on the networking titan’s imperial overstretch as it moves into a growing number of market adjacencies. Those companies, too, might chip away at Cisco’s grand edifice, but Huawei has the potential to do serious damage.

Huawei is a potent threat not just because it uses its Chinese base to make low-cost gear that gives it pricing latitude and allows it to put margin pressure on Cisco. HP, now that it has 3Com in its stable, can use similar competitive tactics.

Where Huawei and HP/3Com diverge is that the former is an indigenous Chinese company, with close ties to China’s political masters. As a Chinese company, Huawei will benefit from China’s indigenous innovation, the economic and industrial policy prescriptions and regulations intended to make Chinese companies first among equals in their competition against foreign interlopers (Cisco and HP included).

And China is a key growth market, as any technology purveyor will readily tell you. For its part, Cisco, as reported by Reuters, is poised to increase investment and acquisitions in China regardless of trade frictions between Beijing and Washington. Cisco feels it can’t afford not to play in China, even though it faces threats there that other U.S. technology bellwethers, such as Intel and Microsoft, do not face.

Despite the acquisition of the Hong Kong-based set-top box business of DVN Ltd. last autumn, Cisco probably will have to depend on joint ventures as well as acquisitions to broaden its influence and reach in China. Joint ventures, though, aren’t really Cisco’s preferred modus operandi; and joint ventures in China are fraught with risk, especially relating to intellectual property and trade secrets.

China won’t make it easy for Cisco. China’s stated strategy is to develop its own technology behemoths, not to play gracious, generous host to 800-pound gorillas from America. Huawei (and, to a lesser extent, ZTE) will get its government’s backing and support, and in China that counts for a lot.

Cisco will play in China because if feels it has no choice, but can it really win there in the long haul?

Frost & Sullivan analyst Ronald Gruia offered a sagacious assessment:

“No matter how much you’re willing to accommodate and satisfy the Chinese market requirements, there’s only a limited upside for you as a foreign player.”

Aye, there’s the rub.

Cisco is saying all the right things as it embarks on its China strategy. It’s offering enough braggadocio about its Chinese ambitions to placate growth-hungry investors, but it’s also taking care not to say anything that might offend or alienate China’s rulers.

In the end, though, it won’t matter. Cisco might get some business in China, but it will never dominate there the way it dominates markets elsewhere in the world. Cisco will have to accept an accommodation, anathema to those who run the company.