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To: Gary Korn who wrote (24719)	11/26/1997 1:10:00 AM
From: Gary Korn	Read Replies (2) \| Respond to of 61433

CPQ/NETWORKING article #8 (see BOLD): 11/24/97 Fortune 258 1997 WL 3108943 Fortune Magazine Copyright 1997 Monday, November 24, 1997 Issue: NOVEMBER 24, 1997 VOL. 136 NO. 10 TECHNO FILE/INFOTECH/INTERVIEW THE NEWEST MEMBER OF TECH'S RULING ELITE JOHN CHAMBERS Some observers now put Cisco Systems on a par with Intel and Microsoft. When CEO John Chambers recently visited with a group of FORTUNE editors, it was clear that the man has achieved a certain stature in the tech community. He spoke like a statesman about the need for national standards for education and about shareholder rights, two issues being pushed heavily by TechNet, a group of Silicon Valley leaders. But once the discussion got beyond the policy statements, Chambers the CEO revealed himself as a competitive, paranoid businessman who nonetheless believes he has positioned Cisco well for the years ahead. With data and voice communications seeming to merge, will more of your acquisitions be of voice-equipment and software companies? We've said publicly that at least a third, or maybe as many as half, of our acquisitions next year will be in the area of data, voice, and video integration. Our strategy will be very simple. [We'll try to] catch the market in a transition. We'll try to go after those companies trying to creatively combine data, voice, and video. [Lucent, Nortel, and the other voice-equipment makers] realize the same thing in reverse. We look at voice as a huge opportunity, perhaps five times the market size of data. They look at voice as a business growing at only 4% per year, with lousy margins. They see data growing. They view our markets as the opportunity. What's the killer multimedia app that will drive the growth of PC networks? We're finding there is not really one killer app, with the exception, perhaps, of training video. Training video? Whether you're an educator or a fast-growing company such as ourselves or McDonald's or others, how do you train your employees? The answer is video, distance learning. [I know of one university] that has more students getting continuing education via distance learning than they have in the MBA classes. And over 90% of the people in their distance-learning program got raises or got promoted last year. Another big application will be network commerce. My senior vice president just ordered a puppy over the Internet. First, he does a search of 250 breeders of this dog. Then, how many breeders with these particular puppies are in the Bay Area? He ends up selecting a puppy from a person in Santa Cruz who has it up on a Website. This is someone who got a Website because she was communicating over the Internet with her daughter in college, and the daughter set up a Website for her. And all of a sudden she's competing with the biggest breeders in the entire nation. 3Com CEO Eric Benhamou has a theory--that he can sort of surround the network with endpoint devices and build a position comparable to yours. Does that sound smart to you? How are you going to beat him? Eric Benhamou is a very talented individual and a person I have a lot of admiration for. Every call I get about becoming a CEO somewhere else, I send to him. I'd love to see him become CEO of Apple. While there are some things to say about surrounding on the edge, they don't offer an end-to-end solution. We do. So if people want end-to-end solutions, we have a huge advantage. Eric has his hands full combining two very challenging companies located across the country [3Com in Santa Clara, Cal., and U.S. Robotics in Chicago]. Let's say you only have to spend a fourth of your time on such a combination--I'd be shocked if Eric doesn't spend a lot more time than that. When you take 25% of your time away from what you do daily, you're not on your business as tightly as you were before. Your issues are people issues: How do you keep your people, how do you do alignments? You're looking inwardly, not externally, and that lasts for at least a year to 18 months. It's tough enough doing a company a fifth or a tenth your size. It must be tremendously challenging to do one of equal size. Compaq thinks it may be able to provide end-to-end as well. It's got some networking equipment now. So how will it do? When I see 50% margins, I think that I'm dying. Compaq sees 50% margins and thinks it's died and gone to heaven. So it will come into this business. But companies like Compaq will reach a point with the system business where they will have trouble either distributing or supporting or consulting. Then they make the decision--do they want to be in that area? And then we, and others, will try to say it's better to partner than to compete. Is it harder for you to get top-rate talent than it was, say, three years ago? You hear a lot about the shortage of talent in Silicon Valley. We can get the top 5% to 15% of the industry talent pretty easily. We do that because of our unique approach to stock options. The average employee who has been with us for over a year has over $125,000 in profit on unexercised options. That's on top of our average starting salary, which is about $70,000. TABULAR OR GRAPHIC MATERIAL SET FORTH IN THIS DOCUMENT IS NOT DISPLAYABLE COLOR PHOTO: ANDY FREEBERG Cisco's Chambers thinks networking makes even puppy buying easier. [John Chambers] ---- INDEX REFERENCES ----