IBD article. Cisco's Leader Sees Challenges In Voice-Data
Date: 5/18/98
Author: Michele Hostetler
Cisco Systems Inc. proved there's still life in
the networking market.
Many networking companies languished this
spring. But Cisco sales rose 33% to $2.18
billion in its third fiscal quarter ended April 25
compared with the year-ago quarter.
Excluding one-time gains and charges, profit
rose 35% to $483.2 million, or 45 cents a
diluted share.
But the largest maker of networking gear
faces challenges. Cisco CEO John Chambers
spoke with IBD after the company revealed
its quarterly financials.
IBD:
What does Cisco's strong quarter signify to
you?
Chambers:
It's a traditionally challenging quarter for us.
We never have pulled away from our
competitors at the pace that we are currently.
That's the good news.
The challenge is that we're facing a whole
new set of competitors in data-voice-video
integration. If you add up those total markets,
we're less than 10% market share. If you're
an optimist, you look at how much
opportunity there is. If you're a pessimist, you
say you've got some good challenges coming
your way.
IBD:
What's the update on possible alliances with
telecom companies Lucent Technologies Inc.
and Northern Telecom Ltd. ?
Chambers:
We (go) into (negotiations for) alliances
knowing that there will be at least two to
three steps forward and one back. Lucent
didn't work, and we said at the beginning that
we'd give it 50-50 odds.
IBD:
What happened?
Chambers:
Several factors. They're a good company, but
their culture is dramatically different than ours.
The more we worked with them, candidly,
the less effective both of us were. There
wasn't good trust between either side. The
chemistry match was not good. It goes back
to if you can't keep your products . . . from
overlapping too much, you're not going to
have a partnership.
IBD:
And what about a possible Nortel alliance?
Chambers:
Too early to tell. NEC and Alcatel are
working reasonably well. We're going to try
to do 10 to 15 of these (alliances) and realize
that probably about one-third will fail.
Remember, only two have been done well in
the history of the industry, and that's Intel-
Microsoft and HP-Canon. Time will tell if
we're successful (with our alliances). I fully
anticipate there will be setbacks along the
way, and successes.
IBD:
What's your response to observers who say
Layer 3 switches - a product that combines
the speed of switches with the power of
routers -could take away Cisco's traditional
router sales?
Chambers:
We've never had any religion when it comes
to technology. We plan to lead in Layer 3 as
we have done in all other technologies. The
market can go whichever way it wants to.
Our experience has been now that people
understand Layer 3 strategy . . . it's an
end-to-end sale and strategy, where the
Layer 3 products reside in the network and
where our traditional products do. It's a
pretty neat fit.
IBD:
What are some hot areas for Cisco this
summer?
Chambers:
I think how we do in data-voice-video
integration. How we continue to expand into
small and medium-sized businesses. Do we
continue to have success there?
Then you'll see in the fall the rollout of our
consumer strategy. While that's probably a
year, year and a half away from being a
revenue impact, we're trying to signal people
where we're going.
Then I think you'll see us move into a different
relationship with customers, if we do our job
well. We'll move away from a strategic
vendor to more of a strategic partner.
It's almost like an IBM of 30 years ago,
where you understand not only how to make
the technology work, but you understand
what applications have the biggest payback
(and) how you work together to allow the
customers to gain competitive advantage . . .
as opposed to just giving them the
technology.
(C) Copyright 1998 Investors Business Daily,
Inc.
Metadata: CSCO LU NIPNY INTC MSFT HP
CANNY IBM I/3574 I/4890 I/3621 I/3675 I/3270
I/1381 I/1003 I/3573 E/IBD E/SN1 E/TECH
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