December 10, 2004 4:00 AM PST

Cisco turns 20

When Cisco Systems unveiled its latest and greatest network router in May, it trumpeted the event as a watershed.

Having grown from start-up to industry behemoth over the past two decades, the company claimed it was once again proving its technological prowess while laying a foundation for the next 20 years.

Marketing hype? No doubt. But, as Cisco celebrates its 20th anniversary on Friday, the release of its Core Router Series-1 highlights important changes at the world's largest networking gear maker as it casts around for new growth opportunities.

First, the box appears to be the real deal. It's winning customers and has closed the technology gap with rival Juniper Networks, which for the past two years has steadily eaten away at Cisco's share of the core router market. More broadly, the CRS-1 points to the re-ascension of nuts-and-bolts engineering in a company that over time had increasingly given precedence to financial, sales and marketing tactics over technology innovation.

"I think the company has gone through multiple transitions throughout the years," said Mike Volpi, vice president and general manager of Cisco's routing group, who has been with the company since 1994. "In the early days, we prevailed because of the engineering, and while we've always maintained a good balance between marketing and engineering, I feel today we are getting back to our technology roots. There's a lot of innovative spirit within Cisco now."

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What's new:
On its 20th birthday, Cisco Systems looks ready to rebound after a rough couple of years that have hurt its dominance in key markets.

Bottom line:
A sobered Cisco stands at the crossroads. With long-term telecommunications prospects rebounding, now's the time to re-establish itself.

More stories on Cisco

Recent signs of Cisco's reinvestment in engineering include its purchase of Procket Networks this summer for $89 million, and the return this week of prodigal son Tony Li. Li created Cisco's flagship Gigabit Switch Router 12000 routers before leaving to work at Juniper; he later helped found Procket. In addition, Cisco acquired start-up BCN Systems on Thursday, a move that could help expand its new networking operating system, IOS-XR.

At 20, Cisco stands as a paragon of entrepreneurial success, growing out of a living room into a global dynamo with thousands of employees and billions of dollars in annual revenues. Its founders and employees have been rewarded with vast personal fortunes built on stock options, spurring deep loyalty among insiders.

But, much like Hewlett-Packard, Apple Computer and other Silicon Valley icons, the company now stands at a crossroads, arrived at in large part by its tremendous achievements.

The company's fortunes soared in the 1990s on the back of the Internet rocket, only to come back to Earth when the telecommunications boom ran out of fuel. Suddenly, demand for its key lines of corporate networking routers and switches slackened, destroying an aura of invincibility produced by years of 90-percent-plus dominance in its most critical markets.

Cisco has emerged from the boom and bust with a more sober outlook on its future, even as the long-term prospects for telecommunications and network spending appear to be on the rebound.

To chase new growth, however, Cisco has been progressively forced to forage outside the corporate networking market it dominates, into the highly competitive carrier market and the risky, lower margin consumer market.


Over the next few years, large telephone companies around the world are expected to build out huge IP networks to support broadband and new services like IP telephony and IP video. The market is expected to surge about 20 percent a year, nearly twice that of the corporate market, which is where Cisco has traditionally made its money.

Analysts have said that this new market offers Cisco one of its best chances to meet growth targets of 10 percent to 15 percent a year over the next three years--projections that the company reiterated this week at its annual analysts conference on its sprawling San Jose, Calif., campus.

"The carrier market is key for Cisco," said Dave Passmore, an analyst with the Burton Group. "There's tremendous upside here. This is the only market that they don't have to dominate, and they can still find some significant growth."

Rivals in the wings
With its broad portfolio of products, Cisco is in a perfect position to offer carriers IP solutions, soup to nuts. But Cisco faces stiff competition from rivals that are eating away at its opportunities.

Juniper is one of the biggest threats, especially in the high-end core IP routing market. Over the past year, Juniper gained 16 percent market share, while Cisco's market share dipped by 14 percent, according to Infonetics Research. This is a market that, until 1998, Cisco had exclusively to itself.

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Nice article, and on Linksys
And I think Linksys is a smart aquisition for Cisco. Linksys was/is a very fast growing company. When Cisco purchased Linksys they were selling selling the 4 port BEFSR41 like hot cakes. The 10/1000 $45 router took the performance crown in most of the reviews I read and was very stable. In that same time fram Cisco was selling the 800 series with a 4 port 10 meg hub for ~$500.

Currently Linksys sells a 24 port 10/100 + 1 GigE managed switch for ~$180 and a 24 port 10/100/1000 switch for $400.

If Cisco didn't buy Linksys they would be getting it from both ends with Juniper taking carrier class customers and Linksys taking over small businesses.
Posted by Dachi (797 comments )
Reply Link Flag
Nice article, and on Linksys
And I think Linksys is a smart aquisition for Cisco. Linksys was/is a very fast growing company. When Cisco purchased Linksys they were selling selling the 4 port BEFSR41 like hot cakes. The 10/1000 $45 router took the performance crown in most of the reviews I read and was very stable. In that same time fram Cisco was selling the 800 series with a 4 port 10 meg hub for ~$500.

Currently Linksys sells a 24 port 10/100 + 1 GigE managed switch for ~$180 and a 24 port 10/100/1000 switch for $400.

If Cisco didn't buy Linksys they would be getting it from both ends with Juniper taking carrier class customers and Linksys taking over small businesses.
Posted by Dachi (797 comments )
Reply Link Flag
 

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