December 10, 2004 4:00 AM PST
Cisco turns 20
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Cisco doesn't see any of these technologies exclusively as standalone product segments. Instead, it plans to integrate the technology throughout its many product lines.
"One of the ways we choose whether or not a technology should be added to the Advanced Technology Group is if it can fit into our existing IP products," said Cisco CTO Charles Giancarlo. "If the answer is no, then Cisco questions whether it makes sense to go into that market."
For example, Cisco is already embedding security features into its routers and switches as part of its new Network Admission Control, or NAC, security architecture.
Cisco is also trying to expand its business downstream. Last year it entered the consumer business with the $500 million acquisition of Linksys, a small company focused on selling home routing gear. It has quickly jumped ahead to control about 50 percent of the market in the United States, despite a slew of competitors.
But the consumer market is a totally new beast for Cisco. Gross profit margins on these products are often much lower than they are for Cisco's enterprise or service provider products, which traditionally have hovered around 68 percent. Though the consumer market is an important new area for Cisco, it will likely only be a small contributing factor to the company's overall growth. So far, Linksys contributes only about 6 percent of the company's revenues.
"You can't be a multibillion dollar a year company and remain focused on a niche market, like the enterprise," said Tom Nolle, an analyst with CIMI. "Cisco has to be in the mass-market consumer business. There's money to be made here, but Wall Street has to brace itself for lower gross margins."
Acquisitions on the rise
In addition to developing technology on its own, Cisco is also still looking for acquisitions. In 2004, it has so far announced 10 acquisitions, up from four in the previous year.
It spent $89 million to buy competing core IP router start-up Procket earlier this year. Cisco justified this purchase by saying it wanted the 130 engineers who worked for the company.
Cisco announced earlier this week that it has acquired BCN Systems, a start-up that Cisco had funded. Some experts speculate that Cisco plans to use the BCN routing technology to refresh the aging 7600 and 10000 edge routers, which Cisco sells to carrier customers.
The BCN technology could be used in Cisco's ongoing project to extend the new IOS-XR software, originally developed for the CRS-1, onto other routers in its carrier portfolio. The BCN technology and engineers could be just the trick.
The recent rehire of Procket co-founder Li is also an indication that the company is getting serious about its software development. Li is considered an IP routing guru, having helped Cisco build its first core router, the GSR 12000. Li also helped Juniper develop its M-series routers. And he was the software architect behind Procket's core router.
Dan Scheinman, senior vice president of Cisco's corporate development, said the company will continue to use acquisitions to enter new markets.
"We are looking for companies with products at an inflection point where a market is about to take off," he said. "We take advantage of our strength and customer knowledge to accelerate the growth of that technology."
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