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Chambers interview in Monday's IBD as follows...
Cisco Picks Up Product Pace, R&D
Funding
Date: 2/8/99
Author: Michele Hostetler
It was lucky 13 for Cisco Systems Inc.'s fiscal second quarter.
The largest seller of networking gear released 13 products last
quarter, a quarterly record and more than it has released in some
full years, says Chief Executive John Chambers. The flurry
included Gigabit Ethernet products and gear that handles
data-voice-video traffic.
The effort paid off. The company last week said sales for the
quarter ended Jan. 23 rose 40% vs. the year- ago quarter to
$2.83 billion. Operating earnings rose 24% to 36 cents a share.
With charges, final earnings were 17 cents. The results beat
estimates, but shares slipped when Cisco didn't do a stock split,
as some analysts expected.
Cisco wanted to release a lot of products to boost its third
quarter, too. In the past five years, four of its five slowest quarters
have been third quarters.
Chambers spoke with Investor's Business Daily after Cisco
released earnings on Tuesday.
IBD:
How did you try to ensure that the last quarter would be a
success?
Chambers:
We made a conscious decision . . . to boost R&D from what was
7% to what is now about 13% of our total expenditures. We
began to invest in multiple areas of R&D and we also broke
ourselves into business units to focus on each product area. And
within the business units we have customer focus areas. The
products started to spill out pretty rapidly. We started making the
(extra R&D) investment almost two years ago and have been
slowly bringing it up.
IBD:
How do you know you're on the right track?
Chambers:
I spend 50% of my time with customers. They tell you where you
are in key product areas. I listen to critical accounts every night,
365 days a year. We pay our managers -every one of us - on
customer satisfaction.
IBD:
What's another trend getting Cisco's attention?
Chambers:
One that we're right in the middle of is the data-voice-video
convergence, beneath the (network) data infrastructure. The first
area where (convergence) occurred was the wide-area network.
The next major move, if we're right, will be in the local-area
network. There's no reason to have a separate network for your
voice and your data. Companies probably should not be putting
in PBXs (private branch exchanges) or writing them off every
three to five years, because they're not going to be of value in
those later years.
IBD:
What's your take on Lucent Technology Inc.'s plan to buy Ascend
Communications Inc.? Analysts say Lucent bought Ascend for the
technology it got from its purchase of Cascade, to respond to
technology you got from your purchase of StrataCom.
Chambers:
We bought StrataCom for the WAN (wide-area network) and
ATM (asynchronous transfer mode) capability. Lucent bought
Ascend both for that and the dial capability. The challenge is that
Lucent has to fill in a bunch more gaps. Almost all acquisitions
and mergers in our industry fail. Cisco's the only one that's been
really successful in this. Also, most of the key people with an
acquisition are gone within two years. Mory (Ejabat, Ascend's
CEO) did a very good job of managing that company, but the top
management out of Cascade has been long gone. Now, Mory
won't stay retired, because he's really good. I just hope next time
he's a partner, not a competitor.
IBD:
Do you want to offer him a job?
Chambers:
Oh, he's too rich. But I'd love to lure him as a partner. The point
I'm making is the top management is all gone from the original
Cascade-Ascend group. Lucent has got some challenges. I
would not have had the courage to (buy Ascend).
IBD:
Cisco's stock has been one of the best performers ever. What do
you think of President Clinton's proposal to have the government
invest in the stock market to help save Social Security?
Chambers:
I'm not an expert in this area, and I worry when business leaders
express opinions in areas they don't understand as well. I worry
about when people come into the market when it's at an all-time
historical high and (then) get surprised. Having said that, when
you look at the place that's had the best return over the years . . .
it's been the stock market. In the long run, that might be a very
good decision. But you often worry about the entry point, or the
timing.
IBD:
You've worried about increased government regulation. Do you
think this proposal could lead to more such regulation?
Chambers:
No. But I am very concerned about business and government
working together, not just as it affects the Internet. What a lot of
people haven't figured out yet is that if business doesn't
communicate better to certain government agencies about stock
options, accounting for acquisitions, pooling requirements, etc.,
you could suddenly slow down or stop the growth in the industry.
You also put small businesses in the position where they never
will have the chance to compete with the big players. I think the
consumer loses out. You lock in who's going to win, with very few
exceptions. It's almost impossible for anybody to take on
Microsoft unless they can do acquisitions, pool interests and offer
stock options. Sometimes in the effort to address the abuses of a
few, we impose restrictions on the majority.
(C) Copyright 1999 Investors Business Daily, Inc. |
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