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Cisco has vowed to step up its presence in China as a counter measure in its newfound rivalry with HP.

Once close partners, the two companies became mortal foes this year by striking each other where it hurts most: their core markets. Cisco whacked HP first by launching its own line of blade servers. HP answered the slight this November by announcing it would purchase network equipment vendor 3Com.

"I think you will see us continue to expand our focus on China and develop very good relationships there," Cisco CEO John Chambers said on Tuesday during an analyst day at the company's San Jose headquarters. "I've been doing business there for over 20 years, but I think it's time to take it up one more level."

Of course, you won't hear Chambers publicly admit such move is a direct response to HP. He and his underlings like to say that Cisco doesn't base its decisions on what its competition is doing. But there does seem to be an awful lot of happy coincidences.

Later that day, Chambers continued with his thoughts on investing in China: "The fact that I've indicated 'stay tuned because you're going to see us continue to commit both resources and talent in China' means we're very comfortable with our ability to compete there." He then noted that Cisco only has a meaningful presence in about 12 Chinese cities at present and will first decide who its partners will be for the expansion and what specific channels to pursue.

Still, Chambers clearly has a healthy paranoia about future rivalries that will come from China — 3Comian or otherwise.

"Our competitors in the future are going to be from China, we know that," he said. "They'll come at us with dramatically lower price." But Chambers claims that like other market battles, Cisco won't respond with lower prices itself. He said that innovation combined with keen operational execution and a unified vision are the selling points it will stand on.

"You'll notice we normally don't enter a market where stand-alone price is the issue," Chambers said. "We enter architectural plays."

He argues that most of its major customers are looking for a wide-ranging solution rather than the price of an individual box. Unless, of course, a potential customer makes a stink about it.

"If someone is making a decision on a stand-alone box, then price perhaps is the key issue. And we will be competitive where appropriate there." ®

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