Cisco Partners Don't See Channel Play In 'Joint Venture' With China Server Maker Inspur

San Jose, Calif.-based Cisco plans to form a partnership with privately owned Inspur in which each company will invest roughly $50 million -- a $100 million agreement -- to begin to jointly build and sell together networking products, services and solutions inside of China in areas such as cloud, IT infrastructure and Internet of Things.

Cisco partners, however, aren’t seeing a play for them in the networking giant's new "joint-venture" agreement with the China-based server maker Inspur.

"It's in China, for China, so I don't see any channel play here right now where Cisco partners -- you know, outside the walls of China -- can make any new profits here," said a solution provider and Cisco Gold partner, who declined to be identified. "Everybody gets why Cisco is doing it ... I just don't think it's going to affect us, or the U.S. market, in general, either way."

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Although exact details on the partnership are scarce, a Cisco spokesperson told CRN the company is looking to find new markets inside China to resell Cisco equipment while also developing co-branded products and innovation.

"Will there be something here for U.S. channel partners? I don't see that at the moment, but it's early in the process," said the spokesperson. "Just as we have Cisco Gold partners in the U.S., we have Cisco Gold partners in China."

Solution providers said in order to do business in China, you need to have some sort of a partnership with a business inside the country, which not many U.S.-based partners currently have.

"To me, it's like they're opening a new channel there," said a solution provider, whose company is ranked on the CRN 2015 SP500 list. "Everybody says China is an emerging market, which I agree with -- it's a great opportunity, but if you look at what they do moneywise and their financials as a country, you kind of question it ... We have no relationships in China."

Cisco isn’t the only U.S. technology giant going after the country with more than 1.35 billion residents.

Microsoft recently revealed deals with China's most popular search engine company, Baidu, as well as with Chinese smartphone company Xiaomi. Dell this month pledged to invest $125 billion in China over the next five years, while IBM earlier this year said it will help develop China's advanced chip industry. Hewlett-Packard said it plans to sell a 51 percent stake in its server, storage and technology services in China to Tsinghua Holdings subsidiary, Unisplendour Corp., for $2.3 billion.

Vendors such as EMC and NetApp also have established OEM partnerships with local Chinese vendors.

"A lot of the established players found it difficult to do business in the Chinese market, and the way to get around that is to find a strong local partner, so Cisco is right along that line of thinking," said Matthias Machowinski, directing analyst for enterprise networks and video at Infonetics. "Finding a local partner that can be seen as that trusted local person will go a long way to helping Cisco, but other companies, as well, to help them turn their China business around."

Cisco reported revenue in China was down 3 percent year over year for its fourth-quarter fiscal year 2015, which ended July 26 -- a big improvement compared to a 20 percent year-over-year drop for its third quarter.

"Our fiscal Q4 results in China were more encouraging than any quarter over the past two years," said CEO Chuck Robbins in a blog post. "Today, China represents approximately 3 percent of our business, and being the world’s second largest economy, we see the potential to increase this considerably over time."

On June 17, Robbins and former CEO John Chambers gathered with leaders and government agency officials in China to unveil a $10 billion initiative that includes "renewed commitment" and agreements with the Chinese government to expand partnerships, research, investments in "next-generation" Chinese technology and spur job creation.

Robbins said the Inspur partnership and investment was an "important first step" toward the $10 billion initiative.

Michael Girouard, executive vice president of sales at TekLinks, a Birmingham, Ala.-based solution provider and Cisco Gold partner, said although he doesn't see any short-term benefits for the channel, there possibly may be some for growth in the years ahead.

"With Cisco basically setting up manufacturing facilities there, their 'Built in China' initiative could help Cisco take market share, and with the additional market share to be had, that only bodes well for channel partners that have business established in China," said Girouard.

Girouard said TekLinks, for example, may be able to employ people in China and "set up shop" there to take advantage of the increased investment Cisco is putting into the country.

"But if [Inspur] is more just like a channel partner, reselling Cisco, I don't want anything to do with it," said Girouard.

Gary Berzack, CTO and COO of eTribeca, a New York-based solution provider and Cisco partner, said he doesn't see any short-term benefits for his company, but is optimistic about the future technology the two companies can create.

"It sounds to me like this [technology partnership with Inspur] has the capability to build that infrastructure into products that can be dealt in the United States," said Berzack. "This seems to really be a marketing agreement to get them into selling better to their customer base ... We're not in the Chinese market, but there's a lot of possibilities."

China butted heads with the networking giant in 2014 as tensions arose when the country accused Cisco of allegedly helping the U.S. in cyberespionage activities. Just two weeks prior to the accusations, photos were published showing the National Security Agency (NSA) allegedly intercepting and implanting surveillance functionality into Cisco equipment going overseas. Cisco denied the accusations, with Chambers going so far as to writing a letter to U.S. President Barack Obama asking him to curb NSA surveillance.

Robbins, who took the helm for Cisco in July, said there's a renewed energy and optimism within his company about its future in China.

"I am proud of the long-term, trusted relationships we've built in China that have contributed to Cisco's success in the last 20 years and, together with our Chinese partners, I believe we have even greater opportunities ahead," he said.

PUBLISHED SEPT. 24, 2015