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Cisco CEO Chambers: We're in China for the Long Run

Stocks in this article: CSCO IBM

NEW YORK (TheStreet) -- Cisco (CSCO) will be patient in China as it seeks to overcome its challenges in the country, said CEO John Chambers.

"We are in China for the long run -- it is a long-run mentality that you have to take at the present time," he said, during a lunch briefing with journalists at the company's financial analyst conference on Thursday. "Our focus on China will be fully involved and it will take a long-term attitude."

Cisco made headlines last month when it said that the fallout from the National Security Agency's spying controversy had damaged its business in the world's second-largest economy. The networker's China unit endured an 18% decline in its recent fiscal first quarter from the same period a year ago. At the time, Chambers blamed the drop on "challenging political dynamics" in China.

Speaking on Thursday, Chambers explained that there are no quick fixes for Cisco in China. "I just wanted to share with our shareholders that it's not something that's going to change in a quarter or two," he said. "You have to be very patient, you have to work the issues through, and you have to keep the conversations that you have at all levels confidential, because otherwise you won't have anymore."

Investors should not expect any big, bold moves from Cisco, according to the CEO. "It will be a series of quiet moves," he said. "If you watch, the Chinese send messages very subtly -- who sits beside who at a table? Who do you meet when you go to China? Who you don't meet within the area and do you do joint ventures or not? What key market opportunities do you have? Which customers are you doing business with or not within the areas?"

"It's a slowly evolving area -- it's an area that I'm personally very comfortable with," added Chambers. "It's exciting what's going on over there. I have been there for 28 years and so I know the culture, the leaders."

Cisco signed a joint venture deal last year with China Electronics Software Information Service. Based in Shanghai, the joint venture develops technology for public services and industry applications in China.

Cisco, however, will not be knocking on any doors in the corridors of power. "We're not asking help from any government leaders. When we had an issue with Huawei many years ago on the patent issues many people said 'do you want us to help'?" he said, in response to a journalist's question. "The answer is 'No, this is company to company.' We worked it through and we were very direct on the outcome of it. And on this one, we will work it through very carefully in terms of our position in China."

During the media lunch, Chambers was also asked whether Cisco's challenge has been exacerbated by the U.S. stance toward rival Huawei. Last year, the U.S. House Intelligence Committee released a damning report on Chinese network-gear companies Huawei and ZTE. The 52-page document called for blocking acquisitions, takeovers or mergers involving Huawei and ZTE, citing the "threat to U.S. national security interests." The committee also said U.S. government systems and contractors should exclude Huawei and ZTE equipment.

"I think there is a focus on China national pride and using indigenous innovation in their own technology companies. I think it's more along that line," said Chambers. "Huawei has done a very good job at marketing there."

"That's just part of the environment we live in -- [Cisco President of Development and Sales] Rob [Lloyd] and I are very good at navigating through that," he added.

It's not just Cisco, though, which is wrestling with issues in China. During its recent fiscal third-quarter results, IBM (IBM) said its China business was down 22% from the prior year's quarter. In an investor conference call, Chief Financial Officer Mark Loughridge noted a "pause" in spending as China develops its new economic plans.

China certainly spells big business for Silicon Valley. Research firm Forrester estimated the country will spend $113 billion on IT purchases in 2013, making it the third-largest tech market after the U.S. and Japan. Although largely hardware driven, China has been increasing its spending on software and services, Forrester reported.

--Written by James Rogers in New York.

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