This is a portion of an article in the Raging Bull's Cyberstock Investor Report.Dated August 18th. This man is
really positive on Cisco! Good - we need that.
Conversely, networking infrastructure giant Cisco Systems (CSCO) reported its
strongest quarter in four years, pumping out earnings of $1.2 billion on
revenues of $5.7 billion -- a 61% increase over the same period last year. This
comes less than a month after network hardware and software mammoth Sun
Microsystems (SUNW) reported its record-breaking quarter that contained more
than $5 billion in revenues, up 42%, with earnings soaring 67% to $395.3
million.
It's no coincidence that both of these companies are flourishing as numerous
dot-coms crash and burn around them. Cisco chief executive John Chambers
attributes much of his company's success to the exponential growth of the
Internet. But I also believe that the success of Cisco and Sun has as much to
do with what I call their "tentacle strategy." Simply put, by adopting an
aggressive acquisition policy, both companies have managed to spread their
tentacles into many embryonic markets, quickly positioning themselves to take
advantage of neo-niches that complement their core competencies.
Increasing markets geometrically
For instance, during its last quarter Cisco acquired eight companies, including
Israeli-based microchip maker Seagull Semiconductor; Stockholm-based Qeyton
Systems, a developer of Metropolitan Dense Wave Division Multiplexing [MDWDM];
and Menlo Park, Calif.-based JetCell, a developer of wireless telephony
solutions for corporate networks.
So what does this all mean, and what is Cisco positioning itself for? At the
beginning of the month, Cisco also shelled out $425 million to acquire Ipmobile,
a company based in Richardson, Texas that builds wireless router and gateway
products. When one considers the fact that Cisco acquired a strong computer
telephony integration [CTI] product used by call centers to transmit voice via
the Internet last year when it gobbled up GeoTel of Lowell Mass., one begins to
see the customer relation management [CRM] segment of e-commerce as a natural
niche for Cisco.
The fact that Cisco also recently bought WebLine of Burlington, Mass., a maker
of Web collaboration software for Internet customer service, proves to me that
my hunch is on the money. Additionally, Cisco's ever-growing capacity though
its acquisitions to provide wireless network services via an IP-based
architecture puts it in a strong position to exploit the anticipated
proliferation of handheld devices as the newest network tool.
Moreover, Cisco has recently made a foray into emerging consumer-networking
market by announcing that it will wire 13,000 new homes in the Los Angeles area
with networking technology. This is a market that is expected to grow from $600
million in 2000 to more than $5.7 billion by 2004, according to Cahners In-Stat
Group. By using much of its acquired technology, Cisco has already inked deals
with such home appliance companies as Whirlpool Corp. (WHR) to provide smart
refrigerators that can be controlled via the Internet.
Closing at 63 7/16 Thursday, Cisco is substantially below its 52-week high of
82, making it a bargain despite its astronomical market cap of $457 billion. I
say this because Cisco's core and vertical market potential boggles the mind as
its leaders appear to have staked out its future.
Thinking many moves ahead
Like champion chess masters, the top management of both Cisco and Sun think many
moves ahead of their competition on this complicated chessboard. While Sun
hasn't made as many overt acquisitions as Cisco, it has learned another way to
assure that its vision of "the network is the computer" becomes a reality. |
