Cisco's Growth Rate Relies on New Markets, Asia, Chambers Says
bloomberg.com
Technology News
Mon, 1 Jun 1998, 3:53am EDT
BN 5/29
San Jose, California, May 29 (Bloomberg) -- Cisco Systems
Inc.'s annual revenue growth will average more than 30 percent in
the next three years only if ailing Asian economies rebound or a
new market for Cisco's computer networking equipment takes off
quickly, analysts and Chief Executive John Chambers said.
Chambers has said he expects the company to average 30
percent to 50 percent annual growth over a three- to five-year
period. That's higher than the overall industry growth rate,
which most analysts peg at around 25 percent through 1999.
Chambers said economic turmoil in Asia has made him
''cautious'' about the next 18 months. Echoing comments he made
to analysts during a conference call May 5, he said Cisco would
maintain 30 percent to 50 percent growth ''assuming reasonably
good economic conditions.''
''They had been expecting a lot of growth to come from
Asia,'' said Jim Cottle, a technology analyst with the University
of California Endowment and Employee Pension Fund, which owns
more than 2 million Cisco shares.
Although Cisco dominates sales of equipment that routes data
on corporate computer networks, growth in its traditional market
has slowed amid price competition from rivals including Bay
Networks Inc. and 3Com Corp. While Bay, 3Com and Cabletron Sytems
Inc. all saw profits decline last quarter, Cisco continued its
unbroken string of quarterly gains in profits and sales.
Still, because of Asia's downturn, Cottle expects the
company's revenue to grow 25 percent this year, down from the
31.5 percent it has averaged in the past four quarters.
Slower Orders in Asia
Asian orders, including Japan, accounted for 11 percent of
Cisco's bookings in the quarter ended in April, down from 16
percent in the year-earlier period. The company doesn't release a
geographic breakdown for revenue, though it does for bookings,
which are orders not yet paid for.
Since Cisco released those figures, rioting in Indonesia has
worsened that country's economic crisis and nuclear tests in
India and Pakistan prompted the U.S. and other countries to
impose economic sanctions. The sanctions include eliminating loan
guarantees which help Indian companies buy goods from U.S.
companies.
''Where economies are having trouble, we're having
challenges,'' Chambers said in an interview last week.
On the May 5 call, Chambers said pessimism among the
Japanese business community over that country's economic
prospects was the worst he had seen in more than a decade of
visits there.
With Asian sales falling, Cisco is looking for more growth
from its two other geographic sales areas: the Americas and
Europe, Africa and the Middle East.
''When you're running on three engines and one of them is
broken, you've got to make it up with the other two,'' said
Martin Pyykkonen, an analyst with CIBC Oppenheimer who rates
Cisco ''buy.''
Telecommunications Market
To reach 30 percent growth, Cisco will need an ''uptick'' in
Asia and ''a good share'' of the nascent market for networking
equipment sold to phone companies and Internet service providers,
said Pyykkonen, who pegs Cisco's growth at 28 percent this year.
The telecommunications carrier market is expected to grow to
more than $50 billion annually by 2002 as ISPs and phone
companies buy new equipment to handle surging Internet traffic.
Chambers has said he wants at least 50 percent of Cisco's
revenue to come from the carrier market by 2002.
''This market is growing faster than most people think,''
Chambers said.
To get its share, Cisco will have to compete against new,
larger rivals like Lucent Technologies Inc. and Northern Telecom
Ltd., which traditionally have sold to telecom providers.
--John Shinal in the San Francisco newsroom (415) 912-2995 /smw/pkc
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