Cisco Now Most Valuable Company in Silicon Valley
Get Company Quote, Info: CSCO
By Duncan Martell
Reuters
PALO ALTO, Calif. (Nov. 10) - Many said it was bound to happen and on Wednesday it did: Cisco Systems Inc., the largest maker of computer networking equipment, became the most valuable company in Silicon Valley, nudging aside the world's largest semiconductor firm, Intel Corp.
And watch out Bill Gates and Microsoft Corp., the world's richest man and most valuable company. If Cisco keeps churning out profits close to its current rate, it's not inconceivable that it might within a few years push aside the software giant to claim the moniker of the most monied. But for now it's got a ways to go to catch up to Microsoft's $481.5 billion in stock market value.
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 the venerable 31-year-old chipmaker Intel's 3.472 billion shares. Cisco's strong first-quarter sales and profits reported on Tuesday propelled the shares up 5-1/4 to a record 79-1/2 on the Nasdaq.
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 & Co., who follows Cisco. "If you think about what's happened in the overall computer industry, there's been a shift away from the stand-alone desk top PC to a more networked environment and economy and Cisco is really at the heart of that transition."
FIRST COFFEE MUG
San Jose, Calif.-based Cisco has come a long way since its founding by two, then-married 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 Feb. 16, 1990 at $18 a share and had annual sales of $69 million for its fiscal year ending in July as well as 254 employees. Since then, Cisco stock has split its stock eight times: 6 2-for-1 splits and 2 3-for-2 splits. Cisco closed out its fiscal 1999 with $12.2 billion in sales and now has 23,492 workers.
And consider this: 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.
Unlike technology heavyweights such as International Business Machines Corp. and others, Cisco's 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 and some companies slow spending on new high-tech gear to deal with Y2K glitches.
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, and sales surged 49 percent to $3.88 billion from $2.60 billion. But IBM, in its most recent quarter, reported disappointing results that took a hit from Y2K and also warned of lower earnings into early next year.
BIGGEST CHALLENGE
But even as Cisco ended Wednesday as Silicon Valley's top dog in terms of market value and its lead in selling gear that helps to zip voice, data and video across networks and the Internet seem 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 Corp., after its multibillion spending spree, is now the largest U.S. cable company. MCI Worldcom Inc., virtually unheard of 5 years ago, swallowed long-distance phone company MCI and is acquiring cellular company Sprint Corp. America Online Inc., the largest Internet service provider with more than 19 million members, has emerged as one of Microsoft's top competitors.
Undergirding all of this is the geometric growth of the Internet and the race by Cisco, Lucent Technologies Inc., Nortel Networks Corp. and others to sell the gear to cable, telephone companies and Internet service providers, the so-called carrier market, that sends voice, data and video over the same network.
Even Intel is getting the religion, with aggressive moves to beef up its networking business -- a top priority within Intel -- that targets 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.
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 swells 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.
All well and good, but 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." |
