posted 05-05-2000 04:28 PM         

In fact, I wouldn't be surprised to see a bunch of acquisitions in the tech industry be announced in the next few weeks that deal with companies who don't trade at the obscene multiples they used to. Investors aren't the only ones who can bargain-hunt, companies can do it as well, and now might be a great time, especially right after earnings season.

posted 04-25-2000 09:43 AM         

"Silicon Valley machismo says that the two most important components of business success are founding companies and being a great engineer. Forget about wealth and power; if you didn't start the company or aren't a brilliant scientist, then you simply aren't a player. I first noticed this one afternoon at Intel when I referred to Andy Grove as a co-founder of that company. Gordon Moore immediately corrected me. He and Bob Noyce had founded Intel, he said, and Andy Grove was their first employee. Grove may have been present at the creation, but that didn't make him a creator.

Yet against this stereotype we find John Chambers, who didn't start the company he leads, Cisco Systems, and never knew its founders. Chambers is a lawyer and an MBA--a suit, not an engineer. He doesn't even have a deep technical understanding of the products his company sells. So how does this guy qualify as the top CEO in America? Cisco absolutely dominates its markets, continues to grow like crazy a decade after going public, has after Microsoft the highest market capitalization of any company in the world, and owes much of this success to a corporate culture created and nurtured by Chambers, that's how.

For all its recognition on Wall Street, Cisco is hardly a household name. One of many companies started in the 1980s out of the Department of Computer Science at Stanford University, Cisco makes hardware and software rarely seen by end-users but vital to the operation of global data networks. And global means global. For example, Cisco has even greater market share in Japan than in the U.S., a unique phenomenon for that restrictive nation. If a product takes digital bits in one end and spits them out the other, Cisco makes it or competes with it. This is a very nerdy company that has been led since 1995 by a non-nerd.

Perhaps the most important expression of Chambers's vision and skill is Cisco's ability to grow through adaptation. Cisco pretty much invented the commercial Internet by building most of the routers that carry the global network's digital signals, but that was before Chambers even arrived at the company from previous sales jobs at IBM and Wang. Since then Cisco has reinvented itself as a switch company, then as an end-to-end digital service company, and most recently as an audio/video/data network company competing with the likes of Lucent Technology and Nortel Networks. Each move has been in pursuit of bigger markets and expanded opportunities.

Chambers favors reinvention through acquisition: Cisco has bought not just dozens of companies, but dozens of companies per year to stay ahead. Sometimes the point of these acquisitions is to gain new technologies more quickly or for less money than it would have cost Cisco to develop them internally. Sometimes the acquisitions are about getting smart teams of people from the acquired companies. Either way, the challenge is to incorporate these new people and new ideas into Cisco without tearing the company apart. Controlling this mix of people is Chambers's specialty.

"I could be a CEO somewhere else, but I stay around here because of John Chambers," says Howard Charney, a Cisco senior vice-president. Charney previously founded 3Com Corp. with Bob Metcalfe, inventor of the Ethernet. Charney then founded Grand Junction Networks, the first 100 megabit-per-second Ethernet company, and later sold it to Cisco. "There are lots of people working here who could be running their own companies--who were running their own companies," Charney says. "John treats us like peers. If he treated us like employees we'd be out of here. He asks our advice. He gives us power and resources then sets the sales targets incredibly high, which keeps us challenged. He is an adhesive force keeping us working together and not flying apart."

Chambers's pursuit of aggressive growth through acquisition sets Cisco apart from nearly every other high-tech company. Most other companies have to worry about taking a technical misstep--making a mistake about where technology is headed and being punished in the market as a result. Chambers saw this happen at Wang, where the company clung too long to old businesses and it eventually became Chambers' job to fire 5,000 employees. He says he will never do anything like that again. At Cisco, Chambers and his cadre of very smart lieutenants keep an eye on the market and use their incredibly deep pockets to buy more companies in whatever technical direction the industry moves. It's a game of catch-up that Cisco can afford to play, one that reduces uncertainty and probably saves money in the long run. Chambers does this knowing that unlike most of its competitors, Cisco is good at assimilating acquisitions and, what's more, is itself too large to be acquired.

Chambers leaves nothing to chance. He' a precise man who doesn't speak off the cuff to the press; who, because he is dyslexic, practices his business presentations over and over again. Nothing to chance, that is, except the future, which he can't control. There is no five-year plan at Cisco, no distant goal other than getting bigger and more profitable by pushing bits in whatever direction makes the most sense at that time. Chambers' strength is his ability to live with that reality, to trust the smart people around him to brilliantly execute a plan written in sand, knowing that next year or the year after it will all change again.

Chambers's natural role is that of sales manager, and he brings a sales-management approach to the whole company. He gives his private office number to customers and urges them to call if there are problems. Each night he reviews that day's results for 15 to 20 critical accounts among Cisco's 100,000 global customers--accounts that are flagged as troubled or as needing personal attention from the top guy. He sees the key to sales being understanding the customer and practices a low-key, consultative style that has converted companies including DEC, Hewlett-Packard, and IBM from competitors to partners.

Every employee at Cisco knows who is the customer is, because every employee is rewarded based on customer satisfaction. It's a system that makes Chambers popular with the troops, especially since 41 percent of Cisco's stock options are awarded to non-managers--a much higher percentage than at most high-tech companies. Chambers does a lot of team building, often on a personal level. He knows how to keep the nerds feeling secure. The son of two medical doctors from Charleston, West Virginia, Chambers hasn't lost his Appalachian accent or his country charm. He works hard to put people at ease and understands the importance of good manners. When a Cisco employee committed suicide last year, Chambers paid a call to the family the next day, fully vesting the deceased's stock options in the process. Gestures like that are remembered throughout Cisco.

I've visited Cisco a number of times, but as I prepared for my most recent visit I found that I couldn't form a picture of Chambers's office. When I was shown in, I realized why: There is nothing distinctive about it, other than a few family pictures. It doesn't even have a window. Terrorists invading Cisco bent on grabbing the head man wouldn't gain a clue from these surroundings. So, too, with Chambers himself, a trim man of slightly less than average height with sandy, thinning hair. He could be lost in any crowd. His business uniform is a long-sleeve shirt and tie, minus the jacket, but always impeccably neat. His manner suggests self-control, and his bearing could be described as military, though he has a quick smile and tries to make others feel at ease. Add to this mix the West Virginia accent and the image coalesces. It is Chuck Yeager with an MBA.

"Everything we do here is based on four principles--helping our customers succeed, the quality of our team, our own aggressive use of information technology, and applying all that to our overall strategy," Chambers told me. "We want to be number one or two in every market segment we enter or we won't bother entering. We aren't smarter, we can't work any harder than we already do, so we are constantly asking ourselves, How do we do it differently?"

Sometimes doing things differently isn't necessary, especially if the market comes to you. At Cisco's heart has always been IP--the Internet Protocol technology. Now the company, as always seeking larger markets, is entering the business of making equipment to carry digital telephone and video signals. It is a $130 billion market, and a crowded one. But it is also a market in flux as all the traditional players, led by Lucent Technology and Nortel Networks, convert to a new technology--which happens to be IP. So who has the advantage here? Cisco is the new competitor, but the old companies are adopting Cisco's core technology for their next generation of products. Serendipity is on Cisco's side again.

Sometimes doing things differently happens by happy accident, like the way Cisco turned the education market into a global secret weapon. Several years ago, Cisco was trying to sell routers to schools in Arizona. The educators there could afford the hardware but had no budget for staffing or upkeep. A Cisco sales engineer suggested extending the traditional role of school audio/video assistants into data communications, teaching the kids how to maintain their own networks. What resulted was the first Cisco Networking Academy, a program that now encompasses more than 3,300 high school and college academies in 50 states and 60 countries. Cisco maintains an online curriculum, helps train teachers, and sets standards for graduation. The course is four semesters in length and covers how to design, build, and maintain global computer networks. "We did it, at first, for altruistic reasons, never imagining it would lead to high school graduates walking into $50,000 a year jobs as network technicians," Chambers said. Running everywhere from Bed-Stuy to Bangladesh, the Networking Academies are wildly successful.

But there's more. The Networking Academies provide a constant supply of cheap, well-trained labor to keep Cisco networks up and running. And only Cisco networks, because while networking, in general, is covered in the curriculum, the specific networking taught is highly focused on Cisco products. This is a competitive weapon that is only just beginning to show its true result, a guarantee that the Internet infrastructure of coming decades is a Cisco infrastructure. And by insisting on negotiating oversight relationships with state boards of education, Cisco has created a barrier to formation of academies by other companies. "It's too late for anybody else," said Chambers in his sole moment of smugness. Game over.

posted 03-28-2000 09:47 AM         

From techstockinvestor: posted 03-28-2000 05:57 AM

"The Technology Paradigm Has Shifted from the PC to Bandwidth"
See article below from Briefing.com:

Cisco Systems (CSCO) 79 3/4 +3/8: You have probably already read that Cisco has overtaken Microsoft (MSFT) to become the largest company in the world, but to focus on the specifics of these two companies would be to miss a more important paradigm shift that has lessons extending beyond a CSCO/MSFT story. The paradigm shift is one which we have been discussing for a few years -- the technology paradigm has shifted from the PC to bandwidth. The PC paradigm was led by the Microsoft (MSFT)/Intel (INTC) duopoly. These stocks have continued to fare relatively well, but the steep part of the growth curve is now behind them, and these mature businesses are not at the heart of the technology revolution. That title has shifted to bandwidth companies, and the paradigm shift within the paradigm shift is from circuit-switched electronic networks to packet-switched optical networks. At the sweet spot of this paradigm is Cisco. Unlike the Wintel-based PC paradigm, however, Cisco doesn't have a de facto monopoly in this new paradigm, as its hectic pace of acquisitions confirms. So investors can indeed learn from Cisco's ascendance to the largest company in the world. The lesson is that the sweet spot in technology is now in IP traffic delivered over fiber. And the good news is that unlike the Wintel two-company show, there are many opportunities in this telecom revolution. Though Cisco dominates the market for IP routers, it is playing catch-up in the optical arena. With its purchases of Cerent, Monterey, and Pirelli's DWDM division, it is indeed catching up, but there is good reason to believe that unlike the router business, Cisco will only be one of many players in the optical networking space. Some of the others are Nortel (NT), Lucent (LU), Sycamore (SCMR), Ciena (CIEN), Redback with its Siara acquisition (RBAK), and even Juniper (JNPR), which while not an optical networker does benefit from the bandwidth needs of the fiber network. Furthermore, there are a slew of companies in the pipeline. One which recently filed for its IPO is ONI Systems, a maker of metro-area optical networking hardware and software. Many more will follow, and many will fare extremely well given that they are at the heart of the bandwidth paradigm. - GJ