Cisco Systems' designs on
Ottawa
California giant prepares ground for assault
on Nortel, Newbridge
James Bagnall
The Ottawa Citizen
California-based Cisco Systems
Inc. stunned the region's high-tech
community 15 months ago by
announcing it would pay $89.1
million U.S. in stock and cash for
Skystone Systems Corp., then a
little-known fiber-optics specialist
with less than 40 employees.
By conventional measures, this
was an astronomical price. But
computing networking giant Cisco
saw the deal in strategic terms.
Cisco not only acquired
Skystone's fiber-optic
technology, it also gained a
beachhead from which it could
poach the region's most talented
telecommunications engineers.
Skystone, today the Sonet
division of Cisco, has nearly
doubled in the past year to
roughly 65 employees. John
Chambers, Cisco's supremely
polite chief executive, says it's just
the beginning.
"I didn't get this location for just
50 or 100 people," Mr. Chambers said during an interview with The
Citizen. "We love the area. It has a lot of very talented telecommunications
people."
This was Mr. Chambers' first visit ever to the Ottawa region -- a trip he
squeezed in following a powwow with Cisco's global sales representatives
in Toronto.
Aside from a brief meeting with senior people at Bell Canada, Mr.
Chambers spent most of the day huddled up with his Skystone employees,
spreading the company gospel. The essence of the message: Cisco is
superbly positioned to take on what he calls "old world" telecommunications
suppliers like Lucent Technologies Inc. of NewJersey and Canada's own
Northern Telecom Ltd.
He also had a look at Skystone's latest products, a group of fiber-optic
devices aimed at Internet service providers, and any other firm that wants to
link people to the Internet.
It's no accident that Cisco is building a base of operations here in town. As
the previously separate worlds of data and telephone networks finally start
to merge, any company aiming to develop the next generation of
communications networks must be fully grounded in all the relevant
technologies.
Cisco, a data specialist, is reaching out for telecommunications talent, while
Brampton-based Nortel and Kanata-based Newbridge Networks Corp.,
which grew up with a telecommunications bias, have both acquired
computer networking firms in California.
Nortel paid $9.1 billion U.S. to buy Bay Networks of San Jose while
Newbridge shelled out $147 million to pick up UB Networks.
In this battle, Cisco enjoys at least one major advantage. Buttressed by its
leading position as a supplier of routers -- the basic plumbing of the Internet
-- Cisco has very quickly become one of the globe's wealthiest companies
when measured by market value.
Even after Monday's market meltdown, Cisco's market capitalization early
this week was $85 billion U.S., or three times that of Nortel and
Newbridge combined.
It's a form of currency that Cisco can use to great effect in acquiring other
firms. Prior to buying Skystone, Cisco had spent nearly $6 billion U.S. in
cash and stock to acquire a dozen different firms, from makers of
telecommunications switches to designers of dialup modems.
The buying spree has continued, with Cisco's acquisitions team evaluating
five serious proposals every week.
For the moment, Mr. Chambers appears to favor new recruiting and
alliances as his preferred methods of boosting Cisco's presence in Ottawa.
"You'll probably see us expand here more by hiring than anything else," he
said.
Either way, Cisco is now set to take on the $200 billion to $250 billion
market for telecommunications equipment.
This, in turn, will pit the California giant against the likes of Nortel ($15.4
billion U.S. in sales last year) and Lucent ($29 billion U.S.). Against these
players, the easy gains in market share and capitalization will almost
certainly not come so easily.
Regards
Glenn |
