Cisco Systems chief executive John Chambers has always maintained supreme confidence concerning his company's ability to maintain its momentum, even in hard times.
But the state of the network equipment market at the close of 2000 may test his resolve.
Cisco's opportunity to dominate new markets in networking and solidify its position as the largest maker of Internet equipment seemed secure at the outset of last year, despite encroachment from a new round of eager start-ups such as Juniper Networks, Sycamore Networks and Redback Networks.
But this year, the company--widely viewed as the technology bellwether of the Nasdaq Stock Market--faces serious challenges, as it grows at a breakneck pace, hones in on the telecommunications market even as that niche is in flux, and fights a set of smaller companies that appear to have a technology advantage in an ongoing war for market share.
Cisco executives remain relatively bubbly despite a stock that continues to flirt with 52-week lows and telling signs of an economic downturn that could hit a wide cross-section of the technology industry. The executives believe the company is better positioned than others to weather a market downturn, given its huge market presence and strategy to acquire companies to grow.
"This might sound callous, but Cisco is better off if the stock market stays soft during the next 12 months," Chambers told analysts at the company's annual analyst conference earlier this month. Others see the company's continued expectation of 50 to 60 percent year-over-year growth as a challenge that will test Cisco, which for years has been a model of operations. The company now hires more employees in one quarter than many of its smaller competitors employ in total.
Given Cisco's size, some believe the company has lost touch with the cutting edge of technology and risks becoming a marginalised behemoth that throws its weight around to retain customers. Competitors already bemoan a "you won't get fired for buying Cisco" mentality among some customers.
"Since they're growing the way they're growing, and they're going to be this $50 billion (in sales) company, and you're hiring more than 3,000 a quarter, it's hard to stay close to the customer," Jeremy Duke, analyst with industry watcher Synergy Research Group, said in a recent interview. "You have areas growing so fast you can hide a lot of things," Duke said. "The proof is in the numbers. But if you're moving that fast, you increase the risk of pitfalls."
Keeping the edge
One reason for Chambers' optimism is that Cisco relies on innovation from start-ups it acquires to drive new technologies into the market. If the stock market and related venture capital industry remain down over the next 12 months, that may make it easier for Cisco to acquire the companies it needs at lower prices.
A boom among publicly traded start-ups threatened that strategy in 1999 and early 2000, because it seemed Cisco would have to pay huge premiums--such as the $5.7 billion it laid out for ArrowPoint Communications--to buy smaller companies.
Another concern continues to be raised in the networking industry: Is Cisco spreading itself too widely across various markets--with dominance in corporate networking, Internet equipment, and emerging strength in telecommunications gear--to keep its reputation as a technology leader?
