Cisco CEO Sees Increased Share, Cash

CHICAGO – Networking giant Cisco Systems Inc. will have greater market share and even more cash than the staggering amount it now boasts, when the economic slowdown ends, the company's president and chief executive said.

``We will probably gain more market share during this economic slowdown than we ever have,'' John Chambers told Reuters. ``We will probably grow our cash proportionate to the industry at the speed that we've never been able to do.''

Cisco, the world's largest maker of the networking gear that powers the Internet, has suffered along with the rest of the networking and telecommunications industries as the economy has slowed, causing a cutback in corporate spending.

Cisco's rivals such as giants Nortel Networks Corp. and Lucent Technologies Inc., as well as smaller companies like Juniper Networks Inc., have all been affected.

However, San Jose, California-based Cisco saw its fiscal first-quarter revenues improve from the previous quarter and its cash grow further to a huge $19.1 billion. Cisco has remained debt free, while many technology companies have struggled with onerous debt.

'BACK TO THE BASICS'

``It's back to the basics. It's about profits, cash flow and productivity,'' Chambers said ahead of his appearance this week in Las Vegas at COMDEX, America's biggest computer show. ``It isn't about sizzle or new technology. It's about how do you apply that to achieve these goals.''

Before companies and industries focused too much on gaining market share at the expense of profits and cash flow, said Chambers, who has said often recently that Cisco will not use its cash to undercut profits in a bid to win market share.

``Cash is king all the time, but cash is particularly king during economic slowdowns when there's a cash problem and people are worried about the future of companies and securities,'' he said.

Last week, Cisco reported that fiscal first-quarter operating earnings and revenues rose from the previous quarter, providing hope for investors and analysts that a bottom is at hand in the networking sector. The company earned $332 million, before one-time items, on revenues of $4.45 billion.

Others, however, said Cisco's results were boosted by U.S. government spending following Sept. 11 and an unexpectedly strong European corporate market. U.S. corporate spending continues to be weak and Cisco has yet to score significant contracts in the telecommunications sector, analysts said.

Cisco closed trading on Friday at $19.20, up 32 percent since the attacks of Sept. 11. Year to date, the stock has outperformed its peers in the American Stock Exchange Networking Index by about 25 percent.

Chambers said Cisco's cash will allow it to take advantage of opportunities during the downturn, including acquisitions.

He said information technology spending will come roaring back as the economy picks back up, with areas such as mobility and security driving growth.

Chambers said revenue growth will not likely return to the 50 percent to 75 percent rates seen in 1999 and 2000, but could still be in the range 30 percent to 50 percent. Many analysts believe he is too optimistic and growth of 15 percent to 20 percent is more realistic.

SPEED NOT ENOUGH IN THE INTERNET AGE

While most people talk about speed in the Internet age, Chambers said, speed alone will not be enough. Companies will need a strong brand, a culture that can adapt to changes quickly and a talented work force to implement those changes.

``The companies that get those four right will win,'' he said.

While Cisco misjudged the slowdown earlier this year, Chambers said, the company was quick to adjust, improving cash flow and financial results, and cutting inventories after it was initially hurt.

Chambers said each segment of the communications industries will be dominated by one to three companies and he expects Cisco to be one of the survivors where it competes, including the telecommunications business.

While Cisco dominates the market for enterprise, or large corporate customers, it lags far behind such players as Nortel and Lucent in supplying the large telephone companies, analysts have said.

Chambers said Cisco has made missteps in that sector, but it will be a ``long-term battle.'' He added Cisco plans to repeat with telecom companies the success it has had with enterprise customers.

Chambers also said the United States has fallen behind its industrial competitors in its roll-out of consumer broadband connections to the Internet, as well as education.

He said the U.S. needs to set a stretch goal of installing broadband connections in every American home that wants them by the end of the decade, and set policy and action that encourages that.

``Just because you led in the industrial revolution, does not mean that you lead in this next one,'' Chambers said.