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The Money Programme Sunday, 4 June, 2000, 06:47 GMT 07:47 UK
More 4/6/00

John Chambers, President & Chief Executive Cisco with John Penycate, Correspondent.
John Chambers, President & Chief Executive Cisco with John Penycate, Correspondent.

The rise and rise of Mr Internet

Cisco Systems is a business phenomenon, but few have heard of it or seen anything it makes. That's because its products are the boxes that power and connect the Internet. Almost all its customers are businesses like Internet Service Providers, or companies wiring up their offices to work online. As the Internet has grown, so has Cisco - becoming one of the most valuable companies in the world, and for a while earlier this year the most valuable. Having reached the top of one heap Cisco now has wider ambitions: to replace conventional telephone equipment worldwide with its internet-based products, and to enjoy public recognition of its enormous wealth and influence.

At the forefront of its recognition campaign is its President and Chief Executive, John Chambers. A soft-spoken southerner, and already fairly well-known in America, Chambers is not just another Silicon Valley tycoon. He's an information technology visionary with a messianic confidence in the future of the internet, and in Cisco's role supplying the kit to make it work. Glorying in the nickname Mr Internet, he trots the globe preaching his gospel to world leaders from Jiang Zemin to Tony Blair. And he is listened to.

Chambers' credibility lies in Cisco's success. It is the fastest-growing company in the computer industry, long since overtaking Microsoft. Its profits have doubled every year. Over fifteen years, its shares have appreciated by a factor of 1,200. A thousand new employees join each month, and those of its staff with stock options are seriously rich. Chambers is a star in the American business press.

Making 80% of the Internet's links guaranteed Cisco success, but its business strategy is exceptional too. Cisco has grown by acquisition, swallowing up other hi-tech companies and embracing their engineers and technology. The acquisitions binge has gone on every year since 1993, totalling 59 companies so far. Ten companies have already been bought this year; and Cisco expects to buy another fifteen. 31 billion dollars has been spent on acquisition, but it wasn't in cash: the currency used was Cisco's own fast-appreciating shares.

Having dominated the Internet, Cisco now wants to displace the makers of telecommunications equipment like Nortel, Lucent and Ericsson. Cisco has but a small share of that market, but wants telephone companies to junk their existing technology and adopt the Internet - the most efficient way of moving phone calls, data, and video, all at the same time. To achieve that, Cisco tries to persuade businesses to become all-internet operations, and it invites their bosses to Silicon Valley to see how Cisco runs itself entirely using the Internet.

Cisco has 37 factories, but owns only two of them. Instead, complex product-orders are processed and passed to sub-contractors' factories automatically using the web. Most corporate tasks, like job applications or expenses, are processed online. Cisco can produce a complete breakdown of its financial position within twenty-four hours. All this brings massive cost savings and thus higher profits. It is a seductive message for those companies whose systems are still in what John Chambers calls the "old world".

It is said that a company at its most successful is at its most vulnerable. Critics say that Cisco's shares are over-valued and cannot sustain its policy of buying other companies. They say it is over-reaching itself taking on the telecoms giants like Nortel. They say it is in danger from smart, nimble Silicon Valley start-up companies like Cisco itself was eight years ago. They say Cisco can't go on growing for ever. All true. At the same time, when you look at Cisco Systems, it is easy to be persuaded that this is a hi-tech company that is formidable, phenomenal and unstoppable.

John Penycate
Correspondent

Links to more The Money Programme stories are at the foot of the page.


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