Business Tech

Cisco Systems is once again stepping on its partners' toes and taking on new rivals as it adds new capabilities to its suite of unified communications products and services.

On Monday, the company will announce several new and enhanced software tools for instant messaging, e-mail, social networking, videoconferencing, document and video sharing. Some of these new products will compete directly with similar products offered by Cisco partners, Microsoft and IBM.

Cisco is taking direct aim at Microsoft with a new corporate e-mail service called Webex Email. Cisco has combined technology from its acquisition of Postpath with its Webex conferencing service. The combined offering gives corporate users access to their Outlook e-mail from any browser. The new service puts email in the "cloud" and eliminates the need for Microsoft Exchange servers.

Cisco already competes with Microsoft in the unified communications market. In fact, the two companies are strong rivals here. But Microsoft has had an advantage over Cisco with its strong presence on the desktop.

Competition between Cisco and Microsoft started to heat up earlier this year, when Cisco took its WebEx Web conferencing service into the cloud. At that time, Cisco executives said there was a possibility that Cisco would compete directly with Microsoft's e-mail Exchange platform.

As for the online collaboration market, Cisco and Microsoft aren't the only ones developing solutions. Google also offers document creation and sharing online. But so far those services haven't gotten much appeal outside of the individual consumer market. And it has yet to take shape in the enterprise market. And of course, Google already offers Internet-based e-mail through Gmail. IBM, another major Cisco partner, is also trying to get into Web-based e-mail market with its product iNotes.

As part of its blitz of collaboration announcements, Cisco also announced several other products and enhancements to its unified communications line-up, including some new social-networking tools and enhancements to its video conferencing and high-end telepresence solutions.

On the social-networking side, Cisco has developed a YouTube-like service called Cisco Show and Share that allows users to create, edit, and share video content. It is also introducing the Cisco Enterprise Collaboration Platform, which creates a sort of Facebook for corporate users. The tool includes the ability offer blogging, wikis, team pages, and instant messaging on an internal social networking site.

Other new products include the Cisco Intercompany Media Engine. This product allows users from different companies to communicate and collaborate with each other over a secure network connection.

On the video side, Cisco is introducing the Intercompany Cisco Telepresence Directory, which allows users to see who is available for video chats. The company also added the ability to allow Webex users to click to make video calls to users in a Cisco Teleprresence room. These video conferencing rooms are high-definition video conferencing purpose-built rooms that often cost about $300,000. Cisco also said it has tweaked its telepresence product to allow it to work with equipment from competitors, such as Polycom and Tandberg.

Cisco is currently trying to acquire Tandberg for $3 billion. But Tandberg's shareholders recently said they would reject the offer if Cisco didn't increase its bid.

Cisco Systems reported fiscal first-quarter earnings that beat expectations with good sequential growth, giving hope that the ailing economy is on the upswing.

The network equipment maker on Wednesday reported that fiscal first-quarter profits and revenue that were down from the same quarter a year ago but up from the previous quarter.

Cisco reported a quarterly profit of $1.8 billion, or 36 cents a share, compared with a profit of $2.2 billion, or 42 cents a share, for the same quarter a year ago. Revenue for the first fiscal quarter in 2009 was $9 billion, down from $10.3 billion during the same quarter a year prior.

Analysts had expected Cisco to report earnings of 31 cents a share on revenue of $8.75 billion, according to Thomson Reuters.

Even though revenue and earnings were lower than a year ago, Cisco grew revenue and earnings, compared to the previous quarter. In the fiscal fourth quarter, Cisco reported profits of $1.1 billion, or 19 cents a share. And it reported revenue of $8.5 billion.

Cisco CEO John Chambers commented on the company's strong sequential growth, saying the gains are a good indication that economy is in recovery.

"Building off what we saw as a clear tipping point in (the fourth quarter), our (first-quarter) results continued to reflect strong sequential growth trends that meet or exceed expectations during normal economic times," he said in a statement. "We view the improving economic outlook, combined with solid execution on our growth strategy, as creating unparalleled opportunity to drive more value into the core of the network."

Cisco Systems, EMC, and VMware announced Tuesday a joint venture to sell a new integrated data center product.

The venture will sell and provide maintenance and service support for the product, which is called V-Block. It will combine EMC's storage equipment, Cisco's virtualized servers and networking equipment, and VMware's virtualization technology.

The deal had been rumored since September, when the Wall Street Journal reported the companies were working on a collaborative effort code-named Alpine. Talk of the deal heated up late last week and early this week.

The joint venture will market and provide maintenance for the product. But the cloud infrastructure will be built by all three companies.

Cisco and EMC already have a partnership to collaborate around Cisco's new data center platform, which the company calls Unified Computing. And EMC owns nearly 85 percent of VMware.

The companies will provide more details about the joint venture during a press call scheduled for 8:30 a.m. PT.

Cisco Systems, EMC, and VMware are expected to announce this week a new joint venture to sell data center products and services using virtualization technology, according to report in the Wall Street Journal.

The new products called "V-Block" combine EMC's storage equipment with Cisco's new virtualized services and networking equipment along with VMware's virtualization technology.

In September, The Wall Street Journal reported that Cisco and EMC were in talks to form a new services venture code-named Alpine. V-Block may be this same service.

The products will either be sold as an end-to-end solution that companies can install in their own data centers, or customers will have the option of subscribing to a virtualized service, according to reports.

Cisco has been reselling EMC storage gear for years. It also owns a stake in virtualization software company VMware, which operates as a unit of EMC. So it makes sense that the companies would team up on a new services venture.

Earlier this year, Cisco announced a new data center architecture it calls Unified Computing, which includes new virtualized servers. It also includes coordinated support and software integration from partners such as Intel, Microsoft, EMC, and VMware.

Cisco sees the data center market as a multibillion-dollar opportunity. The company anticipates a greater need for storage and high-speed networking within data centers as more services and content come online. Cisco's corporate customers have also begun to virtualize their data centers to make those operations more efficient.

The joint venture will have its own CEO, according to the Journal.

Representatives from Cisco, EMC, and VMware have declined to comment.

The new joint venture is expected to be announced Wednesday before Cisco releases its fiscal first-quarter results.

Network equipment giant Cisco Systems is feeling good enough about the economy to rev up its acquisition engine, pledging to spend more than $6 billion in a single month on smaller companies.

Cisco on Tuesday announced its third acquisition this month and its sixth acquisition so far this year. The company said it plans to buy Web-based security software company ScanSafe for about $183 million in cash.

Two weeks ago the company announced plans to buy wireless equipment maker Starent Networks for $2.9 billion. And at the beginning of the month, it said it would buy Norwegian video conference equipment maker Tandberg for $3 billion

After a brief acquisition hiatus the past year during the economic downturn, Cisco is back in the merger and acquisition saddle. In all of 2008, Cisco bought five companies, all well below the $1 billion price tag. In 2007, it bought a total of 11 companies, including the $2.9 billion purchase of WebEx.

(Credit: Vibol Peou/CNET)

Cisco's eagerness to get out its checkbook again, indicates two things. First it shows that Cisco, which had about $35 billion in cash as of the end of July, is confident enough in the stability and recovery of the economy that it can make some big purchases. And second, it's a good sign that Cisco is seeing some good deals, as the economic downturn has likely depressed the value of many potential acquisition targets.

"Cisco has a lot of cash," said Zeus Kerravala, a senior vice president at Yankee Group. "And it's definitely a buyers' market out there today. If you look at the timing and the amount of money it's spending, I think you can definitely say the company is feeling better about spending that cash now than they were earlier this year or even last year."

Tech bellwether
Cisco, which makes equipment that powers the Internet and most corporate networks around the world, is seen as a bellwether in the tech industry. Because the company's products are used by almost every large company, government entity, broadband and telephone service provider, and thousands of small and medium businesses around the globe, the company has a strong pulse on the economy and technology spending in general.

The company's CEO John Chambers is viewed as somewhat of a technology oracle. And investors listen carefully to what he says and the tone of his comments for hints at what to expect from other companies in the technology sector. Cisco was one of the first companies, well over a year ago, to see the economic downturn coming. The company had noted a slowdown in spending from some of its biggest corporate customers in the U.S. and Canada.

And during the company's most recent quarterly earnings conference call in August, Chambers said he was optimistic that the economy, at least in the U.S., was starting to improve.

"We saw a number of positive signs in the economy and in our business over the fourth quarter," Chambers said during the call in August. "It's still early, but if we continue to see these positive trends in one or two more quarters, there's a good chance we say the tipping point occurred in the fourth quarter."

Specifically, Chambers said he saw orders for new products reverting back to normal trends in the company's fourth fiscal quarter. And he said he was starting to see sequential growth again.

It would appear that the positive trends that Chambers saw in the fourth quarter are continuing in the first quarter, as Cisco now feels confident enough to make some big purchases.

This is important because during the company's 25-year history, Cisco has traditionally grown its business through acquisition. During the dot-com and telecom boom times, Cisco was one of the biggest acquirers in the technology industry. In 1999, it spent roughly $14 billion on 18 companies, including nearly $7 billion on optical networking start-up Cerent. In 2000, it spent about $12.5 billion on 28 deals.

After the bubble burst, the company's M&A activity was relatively light until 2005, when it bought Scientific Atlanta for $6.59 billion. In 2005, Cisco spent a total of about $7.7 billion, the most money it had spent in one year on acquisitions. With two months left in 2009, Cisco is getting close to breaking that record this year.

As the company attempts to get into new markets like video conferencing, data center, wireless, and consumer products, it is acquiring companies that meet its strategic needs. Chambers has repeatedly talked about the importance of investing during a downturn to position the company growth when the economy returns.

Cornering new markets
ScanSafe is a cloud-based software service that allows customers to license applications on demand. The company said ScanSafe's technology will help Cisco expand on capabilities it added when it bought IronPort in 2007. Cisco also plans to integrate ScanSafe's service with its AnyConnect VPN client to provide a secure mobility solution. And Cisco will use ScanSafe's data centers to provide new cloud security services.

The ScanSafe acquisition is small compared to the other two big acquisitions this month, but Kerravala said it's still very important from a strategic standpoint.

"This acquisition is more aligned with what Cisco is doing in the cloud and in the data center," he said. "The biggest barrier to cloud computing and services is security. So this fits in nicely with Cisco's cloud, data center, and borderless enterprise initiatives."

But the hefty price tags that the company is paying for larger more established companies, such as Starent and Tandberg, suggest Cisco is also looking for a kick-start to jump into new markets like video conferencing and the data center. This is especially important as it goes head-to-head with large competitors, such as Hewlett-Packard and IBM. These deals not only help Cisco compete more aggressively, they help it deliver the growth and performance that Wall Street expects from the company.

That said, Cisco probably wouldn't have considered these big acquisitions if it didn't feel like the economy was returning to normal.

"In a down market, I doubt they'd look for these big deals," Kerravala said. "Now with things coming back, it looks like Chambers thinks the timing is right. When you are being asked by Wall Street to grow 10 to 15 percent each quarter and you're as big as Cisco is now, you have to make big deals to sustain that kind of growth."

In the battle for supremacy among the software industry's Big Four, Cisco may be placing the biggest bets and angling for the biggest returns. Some still think of Cisco as a networking hardware vendor, but hardware is simply Cisco's beachhead into others' turf, similar to how Microsoft (desktop), Oracle (database), and IBM (everything) are using core strengths to move into adjacent markets.

If anyone needed further confirmation of Cisco's software aspirations, its forays into Linux offer a strong hint.

In what might have looked like a publicity stunt around a $100,000 prize for Linux developers, Cisco's Linux development contest was actually a major clue as to just how serious it is about becoming a leading server vendor with a global development community--and soon.

Today, Cisco announced the winners of its "Think Inside the Box" contest. The three winning applications are very interesting, but the bigger story here is what Cisco's contest just demonstrated:

Most of Cisco's 7 million installed Integrated Services Routers (ISRs) are now servers, for all intents and purposes.

The contest proved that server-side Linux developers who know C/C++, Java, or Python can now write applications to Cisco routers with little or no knowledge of routers. (Remember: the finalists only had 90 days to write their applications).

That's a development community of millions, folks. Overnight.

Still think Cisco is a hardware company? By fostering a developer ecosystem around its core router family of products, Cisco just made its hardware solutions much more valuable to its customers (and increased the stickiness of its customer relationships), and turned its routers into a big target development platform for developers.

I wrote about Cisco's contest last June as Cisco's way of paying developers to stick a finger in the Microsoft eye with a $100,000 bounty for writing Linux-based applications for its AXP (Application Extension Platform).

I clearly underestimated Cisco's ambitions.

This is doubly clear when correlated with another Cisco announcement this week about its new and expanded Cisco Developer Network, which SearchNetworking covered.

Cisco is serious about software and fostering a global developer community. As I argued in my "Software's Big Four" blog, each of these companies is entering new markets from incumbent positions of strength, unlike HP and SAP (which both have big software businesses), which are largely sticking to existing businesses.

Millions of Cisco routers already sit in data centers and branch offices around the world. They consume less power than servers. They have a smaller footprint. They're more secure. And they enable a class of applications that Cisco calls "network-aware." Just slot in an AXP blade hosting an application.

Basically routers are much smarter now, and with the right applications can be used to take control of your phones at night to monitor for burglars; manage HVAC, water, and power in your office; deliver advertising in your retail store; and much, much more.

There are two things Cisco still lacks, however, in order to make an unimpeachable bid for developers. First, it needs to move off Broadcom chips for its ISRs and add x86 chips to the mix, something that I'm hearing rumblings may well be on the way.

Second, as impressive as Cisco's outreach to Linux developers has been, the company also needs to support Microsoft's .Net/Windows developers. It's too big a market to ignore.

If Cisco can deliver on x86 and to Microsoft developers--and I think it just might--Cisco will have opened its router (server) family to an even larger development community than the already large Linux market, further blurring the distinction between routers and general-purpose servers.

The result? A formidable software company that sprouted out of a dominant hardware company. How would Oracle, Microsoft, and IBM react?

Follow me on Twitter @mjasay.

Through its latest acquisition offer, Cisco Systems is hoping to grab a bigger slice of the growing video communications market.

Cisco announced Thursday that it will offer $3 billion in cash to acquire Tandberg, a global supplier of video communications equipment.

Based in Oslo, Norway, and in New York, Tandberg provides video networking hardware and software to a wide range of companies looking for teleconferencing and telepresence systems. Tandberg's products range from low-cost desktop tools to high-end conferencing systems.

Cisco has already wet its feet in the worlds of video and telepresence. Two of Cisco's many acquisitions in the last several years--Scientific-Atlanta and Arroyo--furthered the company's grasp of this segment.

But as video becomes increasingly important to enterprise customers, the network giant wants to carve off a greater piece of the multibillion teleconferencing market by integrating Tandberg's technology with its own.

"Cisco and Tandberg have remarkably similar cultures and a shared vision to change the way the world works through collaboration and video communications technologies," Cisco CEO John Chambers said in a statement. "Collaboration is a $34 billion market and is growing rapidly--enabled by networked Web 2.0 technologies."

Once the deal is done, Tandberg CEO Fredrik Halvorsen will lead the new TelePresence Technology Group, reporting to Marthin de Beer, senior vice president of Cisco's Emerging Technologies Group. Cisco said that Tandberg's 1,500 employees will be "extremely important" in fostering growth and innovation for Cisco's video team.

Under the agreement, Cisco will launch a cash tender offer to buy all the outstanding shares of Tandberg for 153.5 Norwegian kroner ($26.45) per share, which comes to a total price of approximately $3 billion. The offer represents a 25 percent premium to the three-month average closing price for Tandberg stock. The proposal has already been unanimously recommended by Tandberg's board.

Subject to the usual regulatory scrutiny, Cisco expects the deal to close during the first half of 2010.

Networking giant Cisco Systems and storage area networking company EMC may be teaming up to form a new joint venture to provide technology services to big companies, the Wall Street Journal reported Thursday.

Citing unnamed sources who have been briefed on the plans, the Journal story said the new joint venture, code-named Alpine, would target large businesses and would focus on installing Cisco server and networking gear and EMC storage equipment into data centers.

It's unclear when the joint venture might be announced, according to the newspaper. So far, Cisco has declined to comment on the speculation. And an EMC spokesperson provided a statement to the WSJ reiterating that the companies have always been close partners and will continue to be in the future.

Indeed, Cisco has been reselling EMC storage gear for years. Cisco also owns a stake in virtualization software company VMware, which operates as a unit of EMC. So it makes sense that the companies would team up on a new services venture.

What's more, Cisco has been making a big push into the data center market. Earlier this year Cisco announced a new data center architecture it calls Unified Computing. This new architecture includes new hardware from Cisco, namely blade servers, an interconnection "fabric," a chassis for the blade servers, fabric extenders and network adapters. It also includes coordinated support and software integration from partners such as Intel, Microsoft, EMC, and VMware.

Cisco sees the data center market as a multibillion-dollar opportunity. The company anticipates a greater need for storage and high-speed networking within data centers as more services and content come online. At the same companies are starting to virtualize their data centers to make those operations more efficient.

Cisco and EMC each already have service businesses of their own. EMC generated about $4.8 billion in revenue in 2008 from its services business, according to the Wall Street Journal. This was about 32 percent of the company's overall revenue.

The Journal also said that Cisco's services business generated about $7 billion to the company's coffers in fiscal 2009, which was about 19 percent of total revenue.

Most of the services that Cisco provides are for products that have already been sold. But the new joint venture would be different because it would entail designing and implementing products to fit into a data center. And as data centers become more complex, it makes sense that Cisco and EMC would want to develop a service to help customers design a data center that would use their products.

Traditionally, Cisco has relied on partners such as Hewlett-Packard and IBM to provide these services and help sell its gear to customers. But with the introduction of Cisco's new data center server products, Cisco's partners are looking more like competitors.

The move to create a services business looks to be part of Cisco's overall strategy to diversify its business. The company's bread and butter remains providing routers and switches to large companies and service providers to power the Internet. But over the past couple of years the company has begun to move aggressively into new areas like IP telephony, videoconferencing, and consumer electronics and home networking gear.

Cisco has also dipped its toe into other services markets. For example, with the acquisition of WebEx, the company now offers corporate users a hosted collaboration service. It has also recently launched a hosted Web service it calls Eos that allows media and entertainment companies to create, manage, and grow online communities by providing tools to create Web sites.

Updated 4:04 p.m. PDT with information from the conference call and an interview with Cisco's CFO.

Cisco Systems CEO John Chambers says the economic recession that's gripped the world for the past year may have reached a tipping point in the last three months, as he sees the company's corporate customers return to spending more on technology.

Even though Cisco's sales and profits were down drastically from a year ago for the fourth fiscal quarter of 2009, Chambers said Wednesday during the conference call with investors and analysts that orders for new products grew for the first time in several quarters.

"We saw a number of positive signs in the economy and in our business over the fourth quarter," Chambers said. "It's still early, but if we continue to see these positive trends in one or two more quarters, there's a good chance we say the tipping point occurred in the fourth quarter."

Cisco reported fourth quarter profits of $1.1 billion or 19 cents a share. This was down from a profit of $2 billion or 33 cents a share during the same quarter a year ago. Revenue fell 18 percent to $8.5 billion compared to the same quarter a year ago when the company reported revenue of $10.4 billion.

The company's results were in-line or slightly above what analysts had predicted.

Cisco, which makes equipment that powers the Internet and most corporate networks around the world, is seen as a bellwether in the tech industry. Because the company's products are used by almost every large company, government entity, broadband and telephone service provider, and thousands of small and medium businesses around the globe, the company has a strong pulse on the economy and technology spending in general.

John Chambers, Cisco CEO

(Credit: Cisco)

Chambers, himself, is viewed as somewhat of a technology oracle. And investors listen carefully to what he says and the tone of his comments for hints at what to expect from other companies in the technology sector. Cisco was one of the first companies, well over a year ago, to see the economic downturn coming. The company had noted a slow down in spending from some of its biggest corporate customers in the U.S. and Canada.

So what are the signs of recovery that Cisco is seeing? During the call Chambers explained that Cisco's quarters are remarkably predictable from year to year in terms of sequential quarterly growth. He said he often expects at least 10 percent growth in orders from quarter to quarter. But in the first half of fiscal 2009, the company actually saw orders drop about 15 percent. Business appeared to stabilize in the third fiscal quarter, which he noted during the company's previous quarterly conference call in May.

In the fourth quarter of 2009, Chambers said he saw an actual change. Orders reverted back to normal trends and the company started seeing sequential growth in its business again.

But Chambers and his team cautioned that one quarter of positive growth does not make a trend, even though the company is hopeful that the upward momentum will continue. Still, Chambers noted some weak spots. While business trends were positive during the quarter in the U.S., Asia, and Japan, they were not so good in Europe. In particular, the U.K., Spain, and Italy are still showing signs of trouble. Germany, he noted, is in a little better shape.

In an interview after the earnings call, Cisco's Chief Financial Officer Frank Calderoni said Cisco is still seeing weakness in sales to service provider customers, too.

"Service providers continue to be challenged," Calderoni said. "For a number of quarters they've been focused on reducing capital expenditures. But it's also a matter of timing. The service provider market was still growing when we saw early signs of weakness in enterprise sales. So it might take a little longer to see them spending more again."

What all of this boils down to is a return to growth and a return to spending on technology, which is likely a good sign for the economy as a whole. Neither Chambers nor Calderoni believe that the recovery will be quick. In fact, the company is only predicting revenue growth of between 1 to 3 percent from the first quarter of fiscal 2010 to the second quarter of fiscal 2010. But any growth at this point is good.

And as the economy starts to make its recovery, however slow, Chambers said he is focused more than ever on growing what he calls "adjacent" markets. During the conference call he highlighted a couple of new businesses he sees as potential billion dollar businesses in the future.

The first is smart grid technology. Cisco is helping energy companies better manage their power grids and resources via IP technology. And the next adjacent market is called "Connected Communities." Cisco is developing new technology and repackaging existing technology to help cities and communities build and refurbish buildings with connected communications technology to better manage energy use and other resources.