Chambers interview in London Times talking trash about LU/ASND. CSCO has consistently overpaid for their acquisitions and they've still got huge gaps in their non-enterprise product lines. CSCO's roll-up strategy has worked only because their competition has made huge strategic errors.
Chambers is just shameless. As I've noted before, he only disses what he fears most and praises the vanquished (e.g., COMS and Benhamou). CSCO finally has real competition -- let's see how they deal with it. LU/ASND, NT/BAY, Siemens, ALA and their US startups, COMS and NN playing sniper, Juniper and a zillion US start-ups funded by greedy VCs ready to take a bite out of CSCO's margins. It's also amusing to note that, if you really think about it, by inference, Chambers is saying that CSCO is very overvalued if he truly believes LU overpaid for ASND given the much higher projected growth rates for ASND vs. CSCO.
Gary, FYI, I have no current position in ASND after riding it from 27 in 11/97 to 80 in 1/99. I just dislike reading silly comments by Chambers which reflected badly upon him. djane
March 19 1999
ANALYSIS
The Cisco kid says Internet education is vital for jobs,
writes Chris Ayres
©
Medium message: John Chambers says Britain's education system is not
yet giving people skills needed for the Internet
Photograph: PETER TRIEVNOR
American evangelist brings Britain
the word on the Web
John Chambers has been likened to both an arms dealer
and an evangelist. As head of Cisco Systems, the $170
billion (£105 billion) manufacturer of networking
equipment - the little black boxes that make the Internet
work - he makes a fortune every time a company wages
war with a competitor online.
It is hardly surprising, therefore, that the 49-year-old
executive whose personal stake in Cisco is now worth
more than half a billion dollars, spends much of his time
jetting around the world telling whoever will listen that the
Internet "will change everything". So far, politicians and
business leaders have been queuing up to meet him.
Mr Chambers claims to have met every government
leader in Asia - including Jiang Zemin in China - apart
from President Kim Dae Jung of South Korea. He also
recently met Tony Blair in London, and he sits on one of
Bill Clinton's trade advisory boards in the US. This week
he is in Britain to meet Jack Cunningham, the Cabinet
Minister, to discuss Internet education.
With an accent from the Deep South, tasselled brogues,
and preacher's eyes, Mr Chambers appears to be a JR
Ewing for the 21st century. He talks at an almost comic
speed, and with an urgency rarely heard from his British
counterparts. Indeed, you often feel as though he is trying
save you from damnation, rather than convince you that
the Internet will revolutionise business.
The message Mr Chambers is delivering this week,
however, is not all positive. He will tell Mr Cunningham
that Britain's education system is not yet giving young
people the skills needed to compete in the Internet
economy, and that fewer people are now online in Britain
than in Germany. Mr Chambers says his belief that
"education is the equaliser in life" was drummed into him
by his parents - both of whom were doctors - and
inspired him to spend nine years studying for a law degree
and then for an MBA.
"There are 50,000 IT jobs open here in the UK, and the
average IT job, whether it's here or anywhere else in the
world, pays 50 to 100 per cent more than the average
private sector job," Mr Chambers said. "That shows that
we are not training people for where the jobs are. We're
being brutally blunt with all governments, and saying that
education systems have to change, or countries are going
to get left behind."
Cisco has already set up "networking academies"
throughout the US - with some recently opening in the UK
- to tackle this problem.
Mr Chambers also has a word of warning for his own
industry, which has recently undergone massive
consolidation. In January, Lucent Technologies, the
former telecoms equipment division of AT&T, bought its
US rival Ascend for $20 billion. Several months earlier,
Canada's Nortel paid $9.1 billion for Bay Networks.
Both deals were regarded by analysts as necessary for
Lucent and Nortel to keep up with Cisco. However,
many have questioned the financial logic of the deals,
especially the enormous price paid for Ascend. Siemens,
the German electronics group, recently described the deal
as "throwing away shareholders' money".
Mr Chambers takes a similarly negative view. He said that
most recent deals have been belated, overpriced, and are
likely to fail. "Shareholders will look back and say, not
only did the acquisition not work, but the price paid for it,
in hindsight, was extremely high," he said. "The acquisition
prices were probably 50 to 100 per cent higher than what
we would have paid." [Chambers is talking valuation!! CSCO is beyond overvalued. How about this statement. Chambers is starting to believe his propaganda, which is a very dangerous thing for CSCO.]
His judgment of Lucent's deal is particularly harsh. "I think
the mathematical [uh, who's math. silly word] odds are that it will fail," Mr Chambers
said. "Look at it in terms of common characteristics; look
at it in terms of common vision of how the industry is
going to evolve, and the role each of those companies are
going to play in that evolution; look at it in terms of
short-term wins.
"The most important thing in the short term is to realise
that you are acquiring people, not technology or current
market share. You must ask yourself if you can keep the
people you have acquired. You must also consider
long-term strategic advantage, and the similarity of
cultures and chemistry, and finally, for large acquisitions,
geographic proximity. According to my estimates, it
doesn't work."
Cisco's own acquisition strategy has been on a much
smaller scale to Lucent's and Nortel's, with the company
holding on to employees by handing out stock. Mr
Chambers - who says a big deal is "unlikely", but does not
rule one out - said: "We've been the best stock to have in
the world for the past ten years, and we've shared it with
our employees in a way that no one has ever done before
in history. I don't have to explain to any employee at
Cisco the relationship between customer satisfaction and
stock performance."
He is particularly fond of buying tiny Silicon Valley
start-up companies.
"Silicon Valley is the most exciting place in the world," he
said. "It doesn't matter what sex you are, what age you
are, what your religion is, or who your parents are: if
you're good, we love you, and if you're not, you're on
your own."
A resident in the Los Altos hills above Silicon Valley
himself, Mr Chambers spends his spare time downloading
music from the Internet on to his electronic piano.
Cisco itself began life as a Silicon Valley start-up in 1996,
founded by Len Bosack and Sandy Lerney, a geeky
academic couple at Stanford University. While trying to
send messages to each other via their computers, they
invented "routers" - devices which act like signposts for
information travelling across computer networks - and set
up a company, Cisco, to develop the technology.
Needless to day, routers ended up becoming a central
part of the Internet, giving Cisco dominance in a market
growing at a ferocious speed.
The couple initially funded the company on credit cards,
then brought in venture capitalists. However, the founders
and venture capitalists fell out, with Mr Bosack and Ms
Lerney leaving Cisco and selling their shares in the
company in the early 1990s. Then, the shares were worth
only 25 cents. Now, they are worth more than $106. Mr
Bosack is now believed to be studying "extraterrestrial
intelligence", while Ms Lerney runs a cosmetics company.
Mr Chambers joined Cisco in 1991 - having worked at
Wang and IBM previously - a year after the company
floated on the Nasdaq stock exchange in the US.
Cisco is now Nasdaq's third largest company, behind Intel
and Microsoft. Its shares may trade on a staggering rating
of 129 times earnings, but, unlike many Internet
companies, it made a thumping after-tax profit last year of
$1.36 billion, on sales of $10 billion.
The enormity of the task facing him is clear to Mr
Chambers: to maintain Cisco's dominance in a rapidly
moving market, with the US Government's anti-trust
regulators breathing down his neck. The company has
already faced one inquiry into whether it tried to carve up
the market for data communications equipment with
Lucent and Nortel - an accusation Mr Chambers denies.
"I like my peers, and I enjoy competing, and I think my
company will be stronger because of competing ethically
and above board," he said. "It means I'll have more
market share in five years' time than if we were more
aggressive."
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