21st century triumvirate -- or 'triopoly'?Some call Cisco Systems the third leg in the "triopoly" that also includes Microsoft and Intel. Optimistic employees already have coined a term for the synergy -- "Wintelco." While Microsoft writes the software and Intel makes the powerful chips that run PCs, Cisco manufactures the routing systems and switches that help computers talk to each other via networks and the Internet. Founded in 1984 by Stanford University scientists (and lovebirds) Leonard Bosack and Sandra Lerner, Cisco has built its fortunes upon the surging demand for reliable network technology. The company sold its first router in 1986, and saw its market explode. Cisco is currently the world's leading supplier of networking products, including multiprotocol routers, bridges, workgroup systems, Ethernet switches, and network management software.
The backbone of the Internet
Cisco's Internetworking Operating System (IOS) allows computers running from different operating platforms to work together seamlessly. The Internet explosion has translated into a booming business for Cisco. The company now makes more than 80 percent of the routers that serve as the Internet's backbone. It also produces much of the technology that connects individual networks to the World Wide Web: routers, LAN and WAN switches, dial and other access modes, SNA-LAN integration, web site management tools, and the aforementioned network management software.
The competition thickens
In 1998, the data networking company initiated talks with telecommunications giants Lucent Technologies and Northern Telecom (now called Nortel), but was firmly rebuffed. Both companies plan to enter Cisco's turf and develop products that would compete directly against those of Cisco. Lucent echoed its refusal a few months later, when it leveled a patent infringement lawsuit against Cisco, alleging a violation of eight data networking patents. Meanwhile, Nortel bought Cisco competitor Bay Networks for $7.6 billion. Cisco has now shifted its focus from merging with a major telecom company to acquiring large numbers of smaller companies and bringing them under its wings.May we come in?
While a mega-merger is unlikely, partnerships appeal to Cisco. Cisco is leery of the "go-it-alone" strategy, and has formed partnerships with Microsoft, Intel, Hewlett-Packard, GTE, Alcatel, and Dell. Some of its most intriguing deals are with consumer-goods makers such as Whirlpool and Samsung. As everything from dishwashers to microwave ovens become web-capable, Cisco hopes these deals will introduce Cisco products into millions of households and the Cisco brand into millions of hearts. The company has estimated this consumer-networking market at $9 billion.
10 years, 8,000 times bigger
Cisco has also leveraged its astounding market capitalization to acquire other companies. The total value of its stock has grown 8,000 percent since the company went public in 1990, and it is now the third-most valuable company in the world, behind Microsoft and General Electric. As of June 1999, Cisco had acquired 35 companies, giving it technology expertise in network management, digital subscriber line (DSL), voice/data/video integration, and phone circuitry systems. Cisco Systems expects such acquisitions to play "an ongoing role" in its strategy regarding rivals such as Lucent Technologies Inc. In June 1999, Cisco and mobile phone maker Motorola together purchased a piece of Bosch Telecom to form a joint company. The new company, SpectraPoint Wireless, will offer high-speed voice, data, and video transmission. Cisco also has made major inroads in the voice transmission field recently.
Further deals and agreements
In August 1999 Cisco made even more purchases and signed a $1 billion agreement to acquire 19.9 percent of the consulting branch of accounting firm KPMG. This move will help Cisco because the company is frequently forced to utilize outside consultants to help clients design, implement, and maintain their networks. In addition to this investment, Cisco acquired two networking companies, Cerent and Texas's Monterey Networks. The Cerent deal was worth roughly $6.9 billion and the Monterey deal $450 million, both in stock. The two companies route traffic over fiber-optic lines used by large telecom companies. (Cisco is looking to form a sales partnership with just such companies.) As though this weren't enough, August also saw Cisco sign a major agreement with Acer. Under the terms of the agreement, Cisco will help the PC manufacturer company update its network in Taiwan and then implement the changes in Acer's worldwide offices. Before the month was out Cisco entered into a multi-billion dollar partnership with IBM. Cisco agreed to buy $2 billion in IBM equipment and the two companies decided to partner in a variety of R&D initiatives.
As if all that weren't enough, early in 2000 Cisco went ahead and signed another deal, this time with ArrowPoint Communications Inc. in a whopping $6 billion stock deal that should improve its Web routing abilities. Cisco said it hopes to use the Acton, Mass., company, which went public in March, to deliver enhanced services to its customers and help speed up the delivery of content over the Internet. Getting bigger by the minute
As if those deals weren't enough, Cisco announced in May 2000 that it plans on acquiring up to 30 firms by the end of 2000. By using what industry insiders are calling "Cisco cash" (not cash, in fact, but the company's booming stock value), Cisco is able to trump most of its competition for these burgeoning firms. By June 2000, Cisco had already acquired firms such as Atlantech Technologies, JetCell, and Altiga networks.
In July 2000, the company acquired Komodo Technology Inc., which develops devices that allow analog telephones to place calls over Internet-protocol-based networks. Cisco exchanged $175 million of its common stock for all outstanding shares and options of Komodo.
For $450 million in Cisco common stock, the company also acquired NuSpeed Internet Systems, a company in Maple Grove, Minn., that had been operating in "stealth mode." NuSpeed would enable Cisco customers to converge data and storage networks into one infrastructure.
This acquisition strategy gives Cisco an edge on the competition by giving the thousands of in-house engineers at Cisco access to a wide breadth of research and technology. At the same time, the deals ensure a constant flow of new Cisco products and services. Cisco is also expanding its physical spaces with new offices; campuses seem to pop up daily.
In August Cisco bought IPmobile Inc. for $425 million in stock. IPmobile provided software systems that enabled ISPs to build third generation (3G) wireless networks.
Crossing borders everywhere
Cisco has continued its trend of forming alliances in a global way, inking deals with Lockheed Martin, Telkom Austria and the government of India. In July, Cisco continued reaching out globally as it teamed up with Singapore-based telecom company StarHub to build a broadband Internet network for businesses in Singapore. Cisco has also made similar investments in Australia, the Philippines, China, and Hong Kong.
Safety net
A computer engineer might worry that with all the acquisitions, his job might not be safe -- especially if he works for the company being bought out. However, after the 1993 acquistion of the Crescendo Communications, Cisco developed the "Mario rule," which states that someone from the acquired firm can only be fired if their CEO gives his or her consent.
Busy month
November 2000 was a busy month for Cisco. Before half the month had passed, the company had already signed three deals worth a total of over $700 million. The company first inked a $150 million deal with Cambrian Communications, a communications network operator, to supply the start-up with optical equipment. The following week, Cisco made two important acquisitions, buying Active Voice, an Internet messaging company, and Radiata, a maker of chipsets for high-speed wireless networks.
