Must-read. 8/31/98 InternetWeek interview with Chambers
Excerpt: Some analysts said that Ascend Communications is
ahead of Cisco in the carrier market. Did the StrataCom acquisition
yield the right WAN products for you?
Chambers: Ascend is absolutely our most challenging competitor in
the WAN ATM switch area. But we have moved from being a
nonplayer three years back to a leading position and are fast moving
past Ascend and 3Com in that area. We finally got the products we
need. Cascade was a very good acquisition, conceptually and
productwise, for Ascend. We just announced our high-end ATM-IP
switches-the 8500, 8540, 8800-the result of the StrataCom
acquisition. StrataCom did give us an end-to-end story, but a big
acquisition is really tough to do, and I'm glad I wasn't trying to do it
across the country.
internetwk.com
August 31, 1998
An interview with John Chambers, president
and CEO, Cisco
Cisco Continues to Raise the
Bar
On July 17, Cisco's market cap hit $100 billion. But aside from a
five-minute toast with his top aides, CEO John Chambers was
focusing on raising the bar even higher. That same laserlike focus he
brought to the company in the late 1980s is still the guiding force.
InternetWeek executive industry editor Saroja Girishankar caught up
with Chambers to discuss Cisco's strategy for continued growth. That
strategy will include a dozen or more acquisitions this year in an
effort to establish itself as the leading provider of integrated voice,
data and video networking to the enterprise and service provider
markets.
InternetWeek: What is your view of the Northern Telecom-Bay
Networks merger and the impact on Cisco?
Chambers: The Nortel-Bay merger is indicative of how data, voice
and video are coming together and how leading vendors need the
combined capabilities. The end-to-end [integrated] strategy is moving
faster than we expected.
To implement that, you either develop the products yourself, partner
or acquire. We tried very hard to partner with Nortel or Lucent, but we
were just unable to do that.
InternetWeek: Why did it not work?
Chambers: The partnership broke down for several reasons. To
partner, you've got to figure out target segments, product overlaps
and speed to market while getting organizations to work both
culturally and chemistrywise. For several of those reasons, it just did
not work out.
InternetWeek: Can you be successful going it alone?
Chambers: We will not go it alone. We will do it through a
combination of developing some two-thirds of the products ourselves
and one-third through partnerships and acquisitions.
InternetWeek: How is the market shaking out?
Chambers: The data communication market is consolidating rapidly.
Cisco has acquired 24 companies and others are following a similar
strategy. Similar consolidation will occur in the traditional voice area.
It is going to be an IP or ATM world as you go forward in the data
infrastructure.
InternetWeek: For Cisco to address the carrier and ISP markets, do
you need to move deeper into voice over ATM?
Chambers: We have no religion when it comes to technology and we
basically let the market determine what product we go into. You will
see our products do IP and ATM. In terms of voice, you need to do it
in conjunction with data and video end-to-end and only a few
companies can do it. That is why half of our acquisitions this year
have been in the integrated data/voice/video area and half of the 10 to
15 companies we plan to acquire over the next 12 months will be in
that area.
InternetWeek: It seems like Cisco's main focus now is service
providers. How does that impact enterprise users?
Chambers: Enterprise is still larger than our service provider market
as far as the customer base. We do expect the service provider side
to grow 10 percent to 20 percent faster year after year than the
enterprise marketplace. As for products, enterprise customers will be
able to use the ones developed for service providers for their intranets
and extranets.
InternetWeek: How will Layer 3 switches affect your router
business?
Chambers: We don't care how the market evolves. We intend to be
No. 1 and No. 2 in the product area, and we also combine the
products into the same chassis so that customers can grow within
each area.
InternetWeek: Some analysts said that Ascend Communications is
ahead of Cisco in the carrier market. Did the StrataCom acquisition
yield the right WAN products for you?
Chambers: Ascend is absolutely our most challenging competitor in
the WAN ATM switch area. But we have moved from being a
nonplayer three years back to a leading position and are fast moving
past Ascend and 3Com in that area. We finally got the products we
need. Cascade was a very good acquisition, conceptually and
productwise, for Ascend. We just announced our high-end ATM-IP
switches-the 8500, 8540, 8800-the result of the StrataCom
acquisition. StrataCom did give us an end-to-end story, but a big
acquisition is really tough to do, and I'm glad I wasn't trying to do it
across the country.
InternetWeek: What are the areas you need to innovate in next?
Where are you putting your R&D resources?
Chambers: We are spending more than $1.4 billion next year in
R&D, and that's more than we earned in sales just five years ago.
We've also made a very conscious decision that R&D is going to run
in excess of 12 percent of revenue; we learned the hard way that
when you are late to market, it takes you years to catch up. We are
heavily invested in the DSL, ISDN, cable and wireless areas. Our
intent also is to be No. 1 in ATM in the enterprise, the desktop and
within the workgroup.
InternetWeek: Switching gears, besides privacy and security, what
other elements are needed to boost the Internet economy?
Chambers: You said it right. Security is a key issue; so are ease of
use and government noninterference. I have been talking to world
leaders, including the prime ministers of Japan and Australia, about
those issues.
InternetWeek: How will Year 2000 compliance impact growth of the
Internet economy?
Chambers: Everybody just got blindsided, honestly, but many of the
companies, particularly here in North America, are well prepared.
Europe looks fine, too, but Asia is behind. In terms of spending,
some of the IT budgets are being shifted to Year 2000 fixes and away
from other developments. But, even more important than the dollars, I
am concerned about management's time and resources that are
being taken by the problem.
InternetWeek: Recently, you've made more acquisitions in the
software management, caching and firewall areas. Do you see
yourself moving further into software?
Chambers: You are going to see software continue to expand within
Cisco in terms of the amount of resources we apply to it, whether it
is internal resources, partnering or acquisitions.
InternetWeek: How will Cisco's relationship with Microsoft change
as you put more intelligence into the networks?
Chambers: The Microsoft partnership is working out well for us. We
are combining its directory with ours.
InternetWeek: What kind of a company will Cisco be in the year
2000?
Chambers: We will be the leader in data, voice, video and all major
segments of the market--the service provider, enterprise,
small-to-medium-sized business, and the consumer.
|
