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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Stock Farmer who wrote (61738)	10/8/2002 7:10:19 PM
From: puborectalis	Respond to of 77400

Cisco Ducks the Veritas Question Cisco Systems Inc.'s (Nasdaq: CSCO - message board) hush-hush relationship with Veritas Software Corp. (Nasdaq: VRTS - message board) took an interesting turn this week, as Cisco CEO John Chambers appeared to duck questions on the nature of his firm's affiliation with Veritas. During a speech Monday at the Gartner Inc. IT Symposium in Orlando, Fla., Chambers reportedly said Veritas "will probably be one of the companies Cisco partners with as it moves into data storage," adding, "You will see us with a number of players. That company [Veritas] will probably be one of those three or four companies." But rather than clarifying Cisco's position, Chambers may have confused the market. Wall Street is now humming with rumors that Cisco is preparing for an acquisition, and the likely candidate is -- guess who? -- Veritas. The rumor allegedly started at Boston investment bank Fechtor Detweiler & Co. A Cisco spokesman confirms that Veritas is a partner of Cisco's, but says that it is one of several partners. "Cisco has always said that we plan to make the Cisco MDS 9000 family [of Fibre Channel switches] an open platform for hosting intelligent storage applications from multiple partners," he says. He declined to comment on whether Cisco was looking into buying Veritas. When Byte and Switch contacted some well known analysts covering this sector, they threw cold water on the likelihood of such a deal. "It's not inconceivable, but it's highly unlikely," says Scott Phillips, analyst at Merrill Lynch & Co. Inc. "We've not seen Cisco make that many software announcements... It would not be in keeping with its strategy." More to the point, he says, Veritas is highly unlikely to sell at its current price. The stock plunged about 20 percent last week to a new 52-week low of $11.53, following the news that Ken Lonchar, its CFO had lied on his resumé (see Veritas Fires Veteran CFO ). William Slaughter, an analyst at Robert W. Baird & Co. Inc., says he would be "flabbergasted" to see this acquisition happen. "Everyone has noticed that Cisco has $22 billion in cash, and they are waiting for it to do something extraordinary with it," he says. Slaughter believes Cisco is more likely to buy McData Corp. (Nasdaq: MCDTA - message board) or Brocade Communications Systems Inc. (Nasdaq: BRCD - message board), if indeed it decides to swing at a major acquisition. "These companies have the OEM and end-user relationships that Cisco wants, and there's no overlapping business it doesn't want to be in." Slaughter adds that buying Veritas or even EMC Corp. (NYSE: EMC - message board), which has also been rumored, would put Cisco in market segments it doesn't necessarily want to be in. "Cisco wants to be a better networking company, not to sell disks or backup software," he notes. Since Cisco announced its intention to acquire Andiamo Systems Inc. in August 2001, analysts have been trying to pin Chambers down on exactly how he plans to compete in the storage market (see Cisco Buys Andiamo and Cisco's Sales Strategy Unclear). Cisco has set itself the challenging goal of becoming the No. 1 or No. 2 player in this sector, but given the intense competition, market watchers believe the company will have to make some aggressive moves to get there. So far it has made one acquisition -- NuSpeed Internet Systems -- that hasn't returned material revenues yet; partnered and then fallen out with Brocade; and formed an in-house development team to build Fibre Channel switches (a.k.a. Andiamo). The Andiamo switches are still in beta testing (see Cisco to Acquire NuSpeed Internet, Cisco Sued Over NuSpeed, Cisco’s Secret SAN Strategies Revealed, and Cisco and Brocade: This Means War). These moves have hardly set the house on fire. Cisco's cautious approach is probably down to the company still feeling its way into a new market. "From what we know, Cisco is going to try and pursue the traditional OEM relationships with the EMCs and Compaqs," says Slaughter. A deal with Veritas, a company EMC is openly attacking with its software strategy, could potentially bring down the barriers to any relationship Cisco might want with EMC, he says. Chambers's reluctance to fully endorse Veritas as a partner at the Gartner event seems to support this view. Nevertheless, the two are clearly in business. When Veritas CEO Gary Bloom was asked about his company's relationship with Cisco during a Deutsche Banc Alex Brown LLC investor event last month, he said Veritas was plugging away on adapting its software to run on Cisco/Andiamo switches. A source who was at the event quotes Bloom as saying: "They need our software to work to succeed, and we need their hardware platform on which to put our software." (See Veritas Puckers Up for Cisco and Andiamo: Getting Warmer?.) Another reason for Cisco's guarded approach is simply the market. Making the wrong move in this economy could be disastrous for Cisco. That said, side-stepping important questions will eventually rattle investors and turn off potential customers. — Jo Maitland, Senior Editor, Byte and Switch www.byteandswitch.com