we see that Cisco is now in the upper elite of the market cap club:
> Less than a month ago, Cisco joined an elite group of fewer than two
> dozen companies whose value as calculated by Wall Street has exceeded
> $100 billion.
Just 12 years from zero to $100billion. That's got to be the record.
And unlike many other $100b companies, there's still lots of room for
Full article follows...
> The Cisco Connection: Network Giant Has Seen the Futuret Together
> by Elizabeth Corcoran
> The Washington Post
> 08/09/98, page H1
> John Chambers believes in the power of networks -- both personal and
> high-tech ones.
> In 1991, shortly after Chambers quit as a senior vice president at Wang
> Laboratories Inc., he sent out a couple hundred resumes, then waited for
> the phone to ring. He got one interview. "The first month was kind of
> humbling," he conceded.
> Ultimately, he was saved by a network of friends and former colleagues
> who knew there was more to Chambers than that resume conveyed. They
> introduced him to a modest company that built the plumbing for data
> networks, a firm called Cisco Systems Inc., which at the time had
> revenue of about $70 million a year. That was long before the Internet
> craze, years before ordinary people chatted about the speed of the
> electronic modems that connected their computers to the global computer
> network as confidentlyas they described the horsepower of their cars.
> These days, Cisco and Chambers, who became president and chief executive
> in 1995, are the darlings of Silicon Valley. Cisco reported its fiscal
> 1998 results last week, posting a profit of $1.35 billion, or $1.26 a
> share, on sales of $8.5 billion, which cheered investors. By the end of
> the week, the company's stock topped $96 a share. Less than a month ago,
> Cisco joined an elite group of fewer than two dozen companies whose
> value as calculated by Wall Street has exceeded $100 billion.
> Chambers and Cisco are the advance guard of the next wave of business
> and technology. The future of tech, they believe, is not about computing
> power -- it's about communicating. The electronic gizmos that people
> will use to talk to one another will become as varied and unique as
> trinkets on a charm bracelet. What will unite them, however, will be
> standardized communications networks. If Chambers has his way, Cisco's
> technology will reside at all the critical junctures, shuttling data
> from one place or device to the next.
> Make no mistake -- Cisco faces tough competition as it tries to expand
> its business by creating the building blocks for very high-speed,
> sophisticated pathways that fuse together data, voice and video signals
> over a single network. Data-networking companies such as the smaller
> Ascend Communications Inc. are eagerly trying to learn how to provide
> technologies as reliable as the telephone network, while longtime
> telecommunications giants such as Lucent Technologies Inc. and Northern
> Telecom Inc. are scrambling to build up their data-networking muscles.
> To maintain an edge, Chambers and Cisco aren't just selling new
> technology -- they are pushing a new way of doing business based on the
> Internet. Here's the pitch: Don't just become a Cisco customer, become a
> "partner." A partner buys Cisco's products and also gets a kind of
> consulting service thrown in for free: Cisco will show you how to run
> with the Internet pack, save money, get into new markets and generally
> flourish by using the power of networks. Exhibit A for how this works is
> Cisco itself. The Cisco people "have a great `slideware' story," said
> Kevin A. Fong, a venture capitalist with the Mayfield Fund in Menlo
> Park, Calif., using Valley lingo to describe Cisco's corporate strategy
> Picturing the Future
> Every networking company wants to build technology that will fuse the
> traditional telephone network with the new Internet technologies. But
> even if the technology isn't ready, Chambers is ready with futuristic
> pictures that are as glossy as a layout on a living room in a decorating
> On a recent summer day, Chambers is the lunchtime speaker for a group of
> half a dozen Italian data-communications businessmen from Omnitel Pronto
> Italia, based in Corsico, whom Cisco is wooing. Chambers's dress is
> surprisingly formal for Silicon Valley. As he greets the Italians, he
> gently mocks his own pale-yellow dress shirt, dark-blue suit and
> patterned silk tie. "It's my IBM heritage," he says apologetically,
> referring to the first job he had after earning graduate degrees in law
> and business.
> He spends only a few moments on such banter. "From what I've been told,
> we're thinking the same way," he tells the Italians, drawing out his a's
> with a West Virginia drawl. It's a smooth compliment. The businessmen
> are proud of their company, which has one of the fastest growth rates of
> any firm in Europe. Even so, its earnings are only a fraction of
> What has driven Cisco's rapid growth, he tells them, has been the
> company's decision to base its business around the Internet. Chambers
> rattles off the numbers: By relying on Internet technologies to carry
> out some traditional corporate functions -- including managing internal
> expense accounts, handling a number of customer questions and
> increasingly handling customer orders -- Cisco believes it saves at
> least $360 million a year, "which is more than our major competitors
> spend on R&D," he tells the Italians, referring to other data-networking
> companies' research and development.
> Making the Pitch
> Chambers flips through a book of slides: Here's a graph showing Cisco's
> sales outpacing those of other networking companies by more than two to
> one; another shows Cisco's market capitalization, almost twice the value
> of other data-networking companies. (Those charts did not include the
> recently announced $800 million acquisition of Stratus Computer Inc. by
> The implied message: Such results can be yours, too, if you adopt the
> Internet business style.
> Chambers doesn't go into the details of Cisco's history, which are fast
> becoming part of Valley lore. The company was founded in 1986 by a
> husband-and-wife team from Stanford University who came up with an idea
> for building specialized computers for transmitting streams of data
> called routers. When an electronic message is sent via the Internet, for
> instance, a router breaks up the message into a jigsaw puzzle of
> envelopes called data packets. Every packet carries with it a network
> zip code for its destination called the IP, or Internet protocol,
> address, along with other identifying information (such as its return
> address, so the recipient can reply).
> Routers act as the traffic directors throughout the Internet. They send
> data from router to router, following a map (called a routing table) and
> a set of rules that help a packet get closer to its destination with
> every move. Eventually, routers deliver the packets to the intended
> network and ultimately to a computer that pulls the contents from the
> envelopes and reassembles the message.
> For years, building routers was a steady but dull business. "Five years
> ago, the majority of technical people thought that Cisco had the wrong
> model," said Eric Schmidt, chief executive of Novell Inc., a major
> software company. Routers, which rely heavily on software to provide the
> "intelligence" that helps them carry out complex tasks, were useful for
> connecting companies together. "Switches" were considered more powerful,
> capable of swiftly handling rivers of information, including traditional
> voice signals but limited to relatively small networks (local area
> networks, or LANs).
> Cisco and others saw, however, that some of the technology used in
> switches could be used to make larger and faster routers. These days,
> top-of-the-line routers are so fast that they can carry voice signals
> along with data, albeit with varying levels of quality. Such technology
> has set people dreaming of the holy grail of networking: a single
> network that fuses data, voice and video information.
> Companies such as Cisco, nonetheless, must still prove that data
> networks can offer high-quality connections and be as reliable and
> flexible as voice networks have been. No company yet has reliable
> products that combine voice and data signals, contended Fong of
> Setting a Standard
> "Under controlled circumstances you can send voice [signals] over IP
> networks," he said. But before Fong considers the technology real,
> "you've got to make it work on Mothers' Day," the busiest calling day of
> the year.
> As Cisco's management works on putting together the pieces for that
> grand network, it runs the company very handily with the communications
> systems available today. According to Carl Redfield, Cisco's senior vice
> president for manufacturing and logistics, 80 percent of Cisco's annual
> $2 billion in materials purchases are handled via electronic networks,
> in which computers at either end communicate directly with one another.
> The rest are handled via the Internet, he said. "I'm saying that no one
> should be a supplier [to Cisco] unless they do business via the
> Internet," he said.
> Doing the Final Assembly
> Cisco itself largely does only the final assembly of its routers. "We
> want to maintain control over the intellectual property of
> manufacturing, not the bricks and mortar," Redfield said.
> Cisco gives its suppliers intricate orders on how to build its
> components, and then computerized scripts for testing those parts. "We
> employ five people externally for every one person inside
> manufacturing," Redfield said. The less time and fewer people Cisco
> devotes to manufacturing itself, the better its profit margins.
> Cisco also is nudging its customers to place orders via the World Wide
> Web. Cisco executives say they are booking as much as $20 million a day
> via the Web. The goal is to link Cisco's ordering and production system
> so tightly that a customer's order triggers component suppliers to ship
> their parts. That makes products more tailored to customer needs and
> shrinks inventories.
> Internally, Cisco now handles all employee expenses and a growing number
> of customer service and support tasks via Web page applications. Proxy
> voting for shareholders is another candidate for the Internet.
> As Chambers sees it, Cisco is just a few steps ahead of many other
> companies in grabbing the savings that come from becoming an "Internet
> company." So he's come up with a recipe to help Cisco create sticky
> bonds with its customers, ones that are hard for them to break.
> As Cisco becomes a one-stop shop for everything a customer needs to be
> an Internet company, Chambers is also exploring ways that Cisco can pump
> up its name recognition through national advertising -- a tactic aimed
> at making a decision to "buy Cisco" easy to explain.
> Most significantly, however, Chambers is steadily turning Cisco's
> "customers" into "partners" that rely on the networking company to help
> chart how they use technology and that even help Cisco prospect for
> future business. He recites his list of allies with the reverence of the
> devout naming the saints.
> First there are "strategic alliances" with big companies such as
> Microsoft Corp., Intel Corp. and Compaq Computer Corp., which Cisco
> counts on to provide the technologies that it either can't or won't
> create on its own. Cisco believes that such deals should promise both it
> and the partner $500 million to $1 billion in revenue that they wouldn't
> have won on their own.
> Cisco has struck 10 such deals, and Chambers has his eye on a few more.
> Some will be flops, he conceded. But because they let Cisco tell a
> customer it can arrange for all the necessary technology to create an
> end-to-end network, Chambers calculates that the deals are worth the
> `Simple' Alliances
> Then there are simple "alliances." To some, these Fortune 500 companies
> might simply be customers. But Chambers wants Cisco executives to work
> closely with them to guide how they use networking technology and help
> them convert their suppliers and customers to the Internet way.
> Cisco can also provide muscle when such companies try to win new
> business themselves. For instance, if Omnitel forms such an alliance
> with Cisco, it might both resell and use Cisco technology. Cisco
> executives, in turn, might help the Italians as they pitch their
> services throughout Europe. Chambers would like Cisco to form these
> alliances with as many as 80 percent of its enterprise customers, up
> from 50 percent today.
> Finally, much as International Business Machines Corp. did a generation
> ago, Chambers wants even smaller customers to lean on Cisco for advice
> as well as technology. "IBM understood the needs of its customers better
> than the customers," Chambers said.
> He'd like as many as half of Cisco's enterprise customers to be
> "partners." So far, only about 10 percent are, he said. Rather than just
> asking them to buy the technology, Chambers wants these companies to
> become a part of the Cisco story, too.
> "We're building a large part of our strategy around our ability to
> partner," he tells the Italian executives. "Maybe you'll say you aren't
> that big, but if you are cutting-edge, then your impact is just as
> important to us."
> Forty-five minutes later, Chambers is driving his message home: "I need
> three short-term and long-term goals that you want from us," he says. As
> soon as they and Cisco managers can agree on the goals, the deal will go
> The meeting ends cordially, with Chambers offering to lend a Cisco hand
> when the Italians grapple with their government over regulations that
> affect the Internet. "If there's anything we can do to help . . . just
> call us," he urges them.
> Afterward, he sends them bottles of a California cabernet. It's vintage
> Chambers: a gesture that delights the Italians and guarantees they won't
> forget about Cisco. The bottles have a Cisco emblem indelibly etched
> into the glass.
> Cisco Systems in Profile
> Business: A leader in networking for the Internet; its products include
> routers (which tell messages where to go), LAN and ATM switches, dial-up
> access servers and network management software.
> Founded: 1984
> Headquarters: San Jose
> Employees: 14,800 worldwide
> CEO and president: John T. Chambers
> 1997 revenue: $6.4 billion (57 percent increase from 1996)
> 1997 earnings: $1.0 billion (14 percent increase from 1996)
> Web address: http://www.cisco.com/
> Friday's closing stock price: $96.87A, down $2.50 (ticker CSCO on the
> Nasdaq Stock Market).
> SOURCES: Cisco Systems, Hoover's Online
> The Router's Line of Work
> One of Cisco Systems' principal products is a router, a kind of traffic
> cop that directs information traveling from one network to another,
> within a company or around the world. Here's a hypothetical example:
> Computer A of Network X wants to send a report, including graphics and
> photos, to Computer B of Network Y:
> 1. Routers examine an address attached to the report to see where it's
> headed, in this case across the country.
> 2. The data is analyzed by routers, then broken up into digestible
> "packets," which will travel separately.
> 3. Routers dispatch each packet by waiting for an appropriate path along
> the Internet to clear, then sending it along. This process is typically
> repeated many times, as a packet is sent from one router to another
> toward its destination.
> 4. Once all the packets have arrived at their destination, routers
> reassemble them so that the recipient can use them.
> Cisco Systems also makes switches, another device to deliver information
> from one computer to another, often used in small networks. Switches,
> however, don't have the sophistication to analyze information and adjust
> the routing process accordingly -- -it just goes out all at once.
Out the 10Base-T, through the router, down the T1, over the leased line,
off the bridge, past the firewall... nothing but Net.