Cisco replaces Intel as most valuable in Silicon Valley
By Reuters
Special to CNET News.com
November 10, 1999, 7:35 p.m. PT
URL: news.cnet.com
Many said it was bound to happen and today it did.
Cisco Systems, the largest maker of computer networking equipment, today became the most valuable company in Silicon Valley, nudging aside Intel, the world's largest semiconductor firm.
Fifteen-year-old Cisco ended the day with a stock market value of $278.3 billion, based on 3.5 billion shares outstanding. That eclipses the $274.3 billion market value of venerable 31-year-old chipmaker Intel's 3.472 billion shares. Cisco's strong first-quarter sales and profits, reported yesterday, propelled its shares up 5.25 to a record 79.5 on the Nasdaq.
Microsoft, the world's most valuable company, may be on alert. If Cisco keeps churning out profits close to its current rate, it's not inconceivable that the company could catch up to the software giant in a few years. But for now it's got a ways to go to catch up to Microsoft's $481.5 billion in stock market value.
More than just an arcane detail, Cisco's newly minted status as the richest kid on the block in one of the densest concentrations of wealth on the planet underscores the sea change underway in high technology and, more broadly, in the global economy. Just as Intel secured a place on the roster of the most important companies ever with its invention of the microprocessor, the brains of personal computers, so too does Cisco stand to be included on that list as the dominant provider of equipment that powers the Internet and global communications.
"This reflects a changing of the guard," said analyst Michael Cristinziano of Gerard Klauer Mattison, who follows Cisco. "If you think about what's happened in the overall computer industry, there's been a shift away from the standalone desktop PC to a more networked environment and economy and Cisco is really at the heart of that transition."
San Jose, California-based Cisco has come a long way since its founding by two Stanford University computer science professors, Sandy Lerner and Len Bosack, in 1984, when there were a mere 1,000 host computers on the Internet. In 1987, it had 10 employees and issued its first coffee mug.
The company first sold shares to the public on February 16, 1990, at $18 a share and had annual sales of $69 million for its fiscal year as well as 254 employees. Since then, Cisco stock has split its stock eight times: six 2-for-1 splits and three 3-for-2 splits. Cisco closed out its fiscal 1999 with $12.2 billion in sales and now has 23,492 workers.
If you had bought $2,000 worth of Cisco stock at the end of its first day of trading when it closed at a split-adjusted price of 12 cents a share, you'd now have more than 16,600 shares now worth $1.33 million.
Cisco's first-quarter profit before charges soared 49 percent to $837 million, or 13 cents a share, from $512 million, or 15 cents a year ago. Sales surged 49 percent to $3.88 billion from $2.60 billion.
Moreover, Cisco chief executive John Chambers said in an interview yesterday that he doesn't expect sales and profits to take a big hit as 1999 rolls over to 2000, unlike fellow heavyweights such as International Business Machines. Some companies are expected to slow spending on high-tech gear to deal with Y2K glitches. IBM, in its most recent quarter, reported disappointing results said to result from Y2K fallout and also warned of lower earnings into early next year.
Analyst Cristinziano said that in 1998, Cisco had 50 percent of what he figured was a $20 billion market for the routers and switches it has traditionally sold. But by 2002 that market will swell to $150 billion because of the convergence of networking and telecommunications, he said.
"All Cisco needs is 20 percent of that to have $30 billion in sales," Cristinziano said.
But even as Cisco ended today as Silicon Valley's top dog in terms of market value and its lead in networking gear seems all but unassailable, it also faces one of the biggest challenges in its short history. The worlds of high-tech and telecommunications, long separate, are now colliding at near-Internet speed.
Microsoft has pumped billions of dollars into cable companies and AT&T, after its multibillion-dollar spending spree, is now the largest U.S. cable company. MCI Worldcom, virtually unheard of 5 years ago, swallowed long distance phone company MCI and is acquiring cellular company Sprint. America Online,the largest Internet service provider with more than 20 million members, has emerged as one of Microsoft's top competitors.
Undergirding all of this is the geometric growth of the Internet. Cisco, Lucent Technologies, Nortel Networks, and others are racing to sell the gear to cable, telephone Companies, and Internet service providers--the so-called carrier market--which send zip voice, data, and video over the same network.
Even Intel is getting the religion, with aggressive moves to beef up its networking business by targeting small and medium-sized businesses. It's also seeking to sell microprocessors to Cisco and others that help to power the routers and switches they themselves sell.
"Intel's own activities are suggesting the real growth in technology has shifted into networking and communications technology," said Paul Sagawa, an analyst at Sanford Bernstein in New York. "The name of the game here is communications and Cisco is the hot company in the hot market.
Will the Cisco freight train ever run out of steam? "Eventually all good things must come to and end but I think we're at least a decade away from that," Cristinziano said." |
