December 10, 2004 4:00 AM PST
Cisco turns 20
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Earlier this fall, Cisco lost a huge chunk of business to Juniper at China Telecom. The carrier, China's largest phone provider, selected Juniper routers for the bulk of its new IP core, and split other pieces of the network contract among Cisco and a few other vendors.
Cisco also faces increased competition from foreign companies such as China's Huawei Technologies, a dominant player in the Chinese market that also won a chunk of the China Telecom deal. Huawei is expanding internationally. It is expected to become a bigger threat to Cisco in Europe as well as in some third-world markets.
"The lack of a high-end router has really hurt Cisco severely for the last couple of years," said Erik Suppiger, an analyst with Pacific Growth Equities. "Juniper has demonstrated better success than any other Cisco competitor in the recent past."
The CRS-1 could prove a major stabilizer for Cisco. Although the CRS-1 came two years after rival Juniper Networks launched its own router upgrades, Cisco has finally closed an embarrassing technology gap that was responsible for lost business. With Cisco announcing its first customers earlier this week, the CRS-1 promises to stem a further slide in market share.
This, coupled with such recent acquisitions as Procket and BCN, could help Cisco appeal to a broader customer base.
"I think Cisco has no choice but to try to diversify its product portfolio," Passmore said. "The enterprise market, where it's traditionally been strong, is growing in the single-digits. Growth will likely have to come from new technologies and new markets like home networking and service provider."
Looking toward the next frontier
Cisco was incorporated on Dec. 10, 1984, by Leonard Bosack and Sandra Lerner, a married couple who worked in computer operations at Stanford University. Using software originally written by another Stanford staffer, Bosack adapted the code to connect computer systems across a network. He and Lerner, who have since divorced, commercialized the product, and Cisco was born.
As legend would have it, the couple maxed out their credit cards to fund Cisco. They recruited friends to help assemble routers in their living room. Twenty years later, Cisco has more than 30,000 employees and is the largest networking company on the planet, bringing in $22 billion in revenue during fiscal 2004, with a market capitalization of $127.61 billion.
Over the past two decades, it has built a brand synonymous with the Internet. John Chambers, the smooth-talking CEO who took over for John Morgridge in 1995, has been at the center of Cisco's success. One industry analyst said Chambers, who talks with a southern twang, is so slick he could sell snake oil to a snake oil salesman. According to industry lore, Chambers has flown all over the world when his charm has been called into action to close important deals.
At the end of the day, however, Cisco fancies itself an innovative technology company. In fiscal year 2004, which ended in July, it spent about $3.3 billion on research and development.
In its effort to find the "next big thing," Cisco has already earmarked a separate category of products it calls the Advanced Technology Group. So far, Cisco has identified six new technologies for this group--security, IP telephony, wireless, storage, optical and home networking--each of which it hopes to grow into a $1 billion business.
In aggregate, these technologies make up a relatively small proportion of Cisco's revenues. But they're growing. In the fourth quarter of fiscal 2004, Advanced Technologies made up about 16 percent of the company's overall revenue, up from 5 percent in 2003. Cisco isn't stopping with these six. Chambers says he hopes to add at least another six.
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