San Jose, California, June 10 (Bloomberg) -- Cisco Systems Inc. Executive
Vice President Don Listwin recalls when he realized the No. 1 maker of Internet
equipment had to start winning business from phone companies like AT&T
Corp.
At a 1996 meeting, Senior Vice President Charles Giancarlo showed a slide of a
beer bottle next to a dollar sign that represented sales in the beer market. He
followed with another slide showing the market for equipment sold to phone
companies. Beside it, three beer bottles. ''That was the day the light bulb went
on,'' Listwin said.
Within months Listwin, 40, helped set up a unit to sell new gear to
telecommunications providers that were clamoring for more capacity for their
data networks.
Three years later, sales to telecommunications providers are rising more than
twice as fast as sales to Cisco's traditional corporate customers.
Phone-company sales make up a third of Cisco's total revenue, expected to top
$12 billion in the fiscal year ending next month.
That was the easy part. Now Listwin has a new task. He's aiming to persuade
phone companies to stop building traditional networks. Instead he wants them to
use the Internet, most of which runs on Cisco equipment, not only to send data
but for phone calls, voice-mail and other voice-related services.
Battle Brewing
Cisco today released a University of Texas study it financed that shows the
Internet generated more than $300 billion in U.S. revenue and was responsible
for 1.2 million jobs last year.
Earlier this week, the San Jose, California-based company unveiled more than
10 products for sending high-speed voice and data over the global computer
network, part of a plan that's included buying more than a half-dozen
voice-related companies.
Listwin's push puts the company squarely in the sights of bigger rivals Lucent
Technologies Inc. and Nortel Networks Corp., which have traditionally supplied
voice gear. They're not going to give up the voice-equipment market, which
contributes the bulk of their sales, without a fight.
Already Lucent and Nortel are counter-attacking by pushing into the Internet
market. Lucent is spending more than $20 billion to buy Cisco rival Ascend
Communications Inc., which makes Internet switching equipment used by phone
companies. Nortel has spent about $8 billion on data-networking purchases.
''Cisco has a monumental task ahead of it,'' said Tom Nolle, an analyst with the
market research group CIMI Corp. in Voorhees, New Jersey.
Turf War
Cisco's ability to defend its own turf while penetrating the voice market is crucial
to the rapid growth of the company, whose market value has quadrupled in
three years to $176 billion.
Cisco's shares, at 110 1/2 in recent trading, are worth more than 300 times what
they were when the company went public in 1990 after adjusting for seven stock
splits. An eighth split, 2- for-1, is payable June 21. ''This is clearly the critical
piece of their business, and it's Listwin's show,'' said Esmeralda Silva, an analyst
with market researcher International Data Corp.
Listwin earned his shot by proving years earlier that he could battle a much
larger, entrenched rival and come out on top.
In 1990, Cisco's products were used mainly to move data between personal
computers. Yet there was a huge untapped market for equipment to link newer
networks with older mainframe systems that used Systems Network
Architecture technology from International Business Machines Corp.
Listwin put together a product strategy and assembled an aggressive sales force
to persuade system managers to switch from IBM to Cisco, then a newly public
company. Within four years, Cisco captured more than 75 percent of the market
for SNA networking gear. ''Don is the best marketing person I've ever seen in
this industry,'' Cisco President and Chief Executive John Chambers said of his
second-in-command.
When the time came for someone to put together a voice strategy, Listwin was
the clear choice. ''Don volunteered,'' Chambers said. ''He also knew that if he
didn't, I would've volunteered him.'' 'Eight for Ten'
Listwin said his successes at Cisco have come from building ''a world-class
team'' that focuses on problems the company's customers are trying to solve.
Borrowing from baseball language, he said he encourages those who work for
him to ''hit eight for ten, not five for five,'' meaning he'd rather see them take on
ten projects and succeed at eight than settle for five successes.
Listwin, who earned a bachelor of science degree in electrical engineering from
the University of Saskatchewan, Canada, said he gets ''about an inquiry a
week'' from companies looking for a chief executive. Yet he's content to be the
heir apparent to Chambers, 49, who's said he intends to stay in his posts for at
least five years.
Those years could bring Listwin's biggest challenges.
While he's persuaded AT&T, Sprint Corp. and U S West Inc. to use Cisco
equipment in their data networks, getting them to put all of their voice traffic on
the Internet will be a tougher sell.
Marketing expertise like Listwin's isn't as big an asset in the telecommunications
market, where customers are more focused on product specifications and often
put new gear through rigorous testing before buying it, several analysts said.
''This is a technology and systems game they're playing in now,'' said Joseph
Zell, president of the enterprise networking division of U S West. U S West has
bought 70 of Cisco's asynchronous transfer mode, or ATM, switches, used to
combine voice and data, Zell said.
Although Cisco has done ''a formidable job'' positioning itself in the
service-provider market, it has yet to prove that all of its products can achieve
the power and reliability needed to offer voice services, Zell said.
Setbacks
And Listwin's telecommunications strategy hasn't been flawless.
The company delayed some products and canceled others it acquired with
StrataCom Inc., Cisco's most expensive acquisition. ''We didn't execute as well
as I'd expected,'' Listwin said in explaining the decision to cancel the TGX-8750
switch, which a year ago was billed as a rival to Ascend's newest ATM
switches.
Still, Cisco has been successful in the past by entering a new market at what
Listwin called ''an insertion point'' -- a customer need that's not being met. It
plans to do the same in the telecommunications market, Listwin said.
In March 1998 Listwin did just that. After U S West's Zell told him the
Denver-based phone company was going to buy gear from NetSpeed Inc.,
Cisco agreed to buy the startup equipment maker for $236 million.
U S West has since purchased more than 1,000 of Cisco's NetSpeed products,
known as DSLAMs, which receive calls coming over high-speed Internet links,
Zell said. ''Cisco wasn't equipped at first, but they solved the problem,'' Zell
said.
It's a story Listwin hopes to repeat many times. |
