Cisco's $16 Billion China Expansion (CSCO)

Cisco Systems (NASDAQ:CSCO) has announced an initiative aimed at strengthening its business commitments and long-term corporate strategy in China. The program defines a three- to five-year plan of increased investment in China in alignment with the country’s long-term economic, societal and environmental goals.

Many of these are ongoing, but there are significant expansions:

• A significant increase in local procurement. In the past five years, Cisco has purchased more than USD $7 billion worth of China-sourced components and services.
• The total value of Cisco’s commitments in China since 2002 are estimated at more than USD $8.5 billion, and under the initiative announced today, could expand to approximately USD $16 billion during the next five years, including significant increases in materials procurement, and increases in education, Cisco Capital, research and development, direct and indirect investments and sales and service operations.
• A Memorandum of Understanding with China Development Bank to explore a joint investment program that would provide capital and expertise for innovative Chinese businesses. The initiative is intended to support high-growth Chinese companies over multiple sectors, with a focus on information technology, "green" innovators, and other key segments (see separate
• announcement).
• A commitment to expansion of the Cisco Networking Academies program in cooperation with China’s Ministry of Education to add 300 additional academies in vocational colleges during the next three years, with a specific focus on China’s central and western provinces.
• A memorandum of understanding with Alibaba Group, China’s largest business-to-business (B2B) on-line portal. Under a previous agreement, Cisco will also invest USD $17.5 million in Alibaba.com Limited.
• Establishment of incremental funding up to USD $400 million for Cisco Systems Capital China for providing financing facilities to Cisco customers in China during the next three to five years.
• The establishment of Cisco’s first global "green" technology center to address the increasing need for sustainable development, energy efficiency, reduction of electronic waste, and emission reductions inside and outside of China.
• Establishment of product and research teams to develop innovative networking equipment to address the SMB (small and medium business) market and emerging countries markets, leveraging local design and manufacturing resources.

Cisco’s market cap is just over $201 Billion currently.

Jon C. Ogg
November 1, 2007