Cisco Expands in Bad Economy - NBC Bay Area

Cisco Expands in Bad Economy



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    Cisco is seeking more ways to capture revenue from the data zipping across networks. Rather than just being in the middle, with its routers and switches, now Cisco wants to sell products at more places on the chain.

    On the surface, there doesn't seem to be much of a connection between the servers that run corporate data centers and a handheld video camera you use to film family vacations. Yet both have somehow become part of the master plan at Cisco Systems Inc.

    After growing into one of Silicon Valley's most prominent companies by selling behind-the-scenes computing products, Cisco is now expanding aggressively, using its hefty financial resources to go on the attack while other companies are just trying to survive.

    In recent weeks, Cisco said it will start selling servers, opening a new rivalry with longtime partners like Hewlett-Packard Co. and IBM Corp. Cisco also agreed to pay about $590 million in stock to pick up Pure Digital Technologies, which makes the popular Flip camcorders.

    Cisco has not been spared by the recession. Its profit declined 27 percent in its last quarter, which ended in late January, and it reported flat earnings in the previous period. It is slashing more than $1 billion in expenses, partly by cutting back on travel and freezing hiring.

    Yet it also has $29.5 billion in cash and investments, a solid reputation, a network of product resellers and thousands of sales employees -- assets that the company hopes to exploit.

    One challenge will be whether Cisco can maintain focus. By the company's own count, it has 28 overall priorities, running the gamut from computer networks in space to "virtual health care."

    Even if Cisco doesn't stumble, Cisco's rivals will try to use the breadth of its goals against it.

    Mike Banic, vice president of marketing for the switches business at Juniper Networks Inc., a Cisco competitor, said it appears Cisco is focusing more on moving into adjacent markets and less on innovations in its core business.

    "Based on what customers are telling us, we are seeing they're becoming a bit distracted," Banic said.

    Even so, Banic said Juniper remains wary of Cisco. "We never underestimate them," he said.

    Since its founding in 1984, San Jose-based Cisco has become the largest provider of the routers and switches that companies use to send data on the Internet and internal networks. This has been incredibly profitable, and briefly made Cisco the most valuable company in the world in 2000, when its market capitalization topped $500 billion. It hasn't come close to this peak since the tech bubble burst shortly thereafter, and today the company's market value is about $100 billion.

    The end of dot-com mania erased almost a third of Cisco's business, as many customers simply went out of business. Back then, the vast majority of Cisco's business involved data-networking equipment.

    In this downturn, Cisco is unlikely to find itself so exposed, according to Marthin De Beer, head of Cisco's emerging technologies group. The company has spent most of this decade diversifying into multiple aspects of computing and consumer electronics.

    Between 2002 and 2008, Cisco bought 59 companies for more than $13.4 billion. Among the biggest forays, the company acquired Linksys, a maker of home Wi-Fi routers and other networking products, for $480 million in stock in 2003, and Scientific-Atlanta, which makes TV set-top boxes, for $7.1 billion in 2006. It grabbed online conference provider WebEx for $3 billion in 2007.