Positive news item on CSCO, dumps a bit on ASND:
2/3/98 Fin. Times 26
1998 WL 3529607
Financial Times
Copyright Financial Times Limited 1998
Tuesday, February 3, 1998
Companies and Finance: The Americas
Cisco finds virtue in low-profile approach
By Nick Denton
Cisco Systems bestrides its own sector nearly as confidently as
Microsoft and Intel do theirs.
While Microsoft supplies the operating systems that control more than
90 per cent of personal computers, and Intel is the dominant
manufacturer of the computer chips at their heart, Cisco makes most of
the junction boxes of computer networks.
Cisco controls 85 per cent of the market for routers -- the devices
which control traffic on corporate networks and the public internet --
of which the company has shipped more than a million. At $64bn, its
market capitalisation is three times that of its four closest
competitors combined.
The Microsoft-Intel duo-poly in the PC market is expressed, in
shorthand, as Wintel; Cisco executives, tacking on an extra syllable,
now talk of Wintelco, a triumvirate.
"Cisco just gets stronger and stronger," says Paul Johnson of
BancAmerica Robertson Stephens, the US investment bank. "This is a
market with great economies of scale."
It is heady stuff for a company founded in 1984 by a husband and wife
at Stanford University to send electronic mail to each other across
networks which spoke different languages.
"Initially we were involved in plumbing and that wasn't very
exciting," says John Chambers, the former International Business
Machines and Wang executive who has been Cisco's chief executive since
1991. "Our success was based on our ability to sell to two to three
technical people deep within the bowels of companies, and so there was
no need to be visible."
Now Cisco is number one or two in all but three of the 15 types of
networking equipment it produces. An investment in the company when it
went public in 1990 has increased 70-fold, and sales reached $6.4bn in
1996-97.
There are factors unique in the company's growth. First, it is the
prime beneficiary of the growth of networking. A multinational company
links its employees' computers as a matter of course, so they can send
e-mail, exchange files and access corporate databases. Now these
networks are coming together, linked by the public internet, which is
now accessed by about 50m people in the US alone.
Mr Chambers is not yet a computer industry icon as starry as Bill
Gates or Andy Grove, the Intel chief. But his remorseless niceness,
which colleagues insist is genuine, has given Cisco a culture of its
own: focused on customers in a way that goes beyond the usual corporate
rhetoric, and egalitarian to the point that executives share hotel
rooms.
Moreover, Cisco's competitors, in merging to expand their portfolio of
products to compete with the giant of their industry, have tripped up,
almost without exception. Bay Networks only recently put behind it the
traumatic 1994 merger from which it formed. 3Com and Ascend
Communications are both wrestling with the acquisitions last year,
respectively, of US Robotics and Cascade.
However, there is one factor in Cisco's success common to Microsoft
and Intel: the ability to offer compatibility to customers. Cisco's
inter-networking operating system, or IOS, has become the lingua franca
of computer networks.
Two years ago, Mr Chambers remembers, he would have been happy if 10
per cent of customers opted for end-to-end Cisco products. Now, in the
interests of simplicity, as many as 70 per cent of companies do so.
But so far Cisco has not attracted the attention of the regulators, as
have Microsoft and Intel. That said, it is not without critics.
"Arrogant is the word that is most often used about Cisco, arrogant and
controlling," says David House, chief executive of rival Bay Networks.
One reason for the lack of regulatory involvement is that Cisco has
fewer corporate enemies than Microsoft. The company prides itself on its
ability to form partnerships with companies such as Alcatel, the French
telecommunications equipment maker.
Second, it has more competition than might be apparent. Cisco faces
new heavyweight competitors, such as Lucent Technologies, as the data
networking and telecoms equipment industries converge.
Finally, Cisco can thank its low profile. Two years ago, the company
was so little known that it received complaints intended for Sysco, the
food distributor whose trucks sometimes disturb residential
neighbourhoods. The company must hope regulators' attacks on monopolies
in the computer industry also remain directed elsewhere.
Nicholas Denton
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