Cisco eyes new markets as downturn curtails profits
Published: 06 Aug 2008 09:02 BST
There's no doubt that the battered economy is affecting technology bellwether Cisco, but the company is looking to the future with plans for big investments across its portfolio in "adjacent markets".
On Tuesday, Cisco reported that earnings for its fourth fiscal quarter of 2008 were up 4.4 percent to $2bn (£1bn) on revenue that climbed 9.9 percent to $10.36bn. The results were in line with analyst expectations, but were far removed from the company's results during some of its best quarters, when the economy was strong and healthy.
Cisco chief executive John Chambers said he expects the company to continue to be affected by the downturn in the economy. He said projected sales would grow by about eight percent in the first fiscal quarter and by about 8.5 percent in the second fiscal quarter.
Chambers declined to give guidance for the second half of the fiscal year, because he said the economic outlook is likely to change in the next six months. However, he reaffirmed his long-term guidance for the company of growth between 12 and 17 percent a year.
While the company waits for the economy to turn around, Cisco is preparing to make heavy investments in new markets to prepare itself for when customers begin spending again.
This means that the company will invest in new markets that are adjacent to existing product lines in all its major customer segments, from the home network to the datacentre, from small and medium-sized businesses to the enterprise, and from its commercial businesses to the service-provider market, Chambers said.
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"We'll partner big to big, and acquire big to small, or big to medium," he said. "So you could see us partner with an IBM or a Microsoft or an Intel. And we'll acquire more like a Scientific Atlanta or a WebEx. My favourite kind of company to acquire is one with 100 engineers who have a hot product they are just about to release."
Cisco has weathered several economic downturns in the past. In those times, Cisco ramped up investments in new markets to fuel growth for the future.
So far, the company has executed this strategy well, spawning several new revenue streams that have gone on to become revenue generators. For example, Cisco's unified-communications business and its IP-telephony business were areas where Cisco invested during previous downturns. Today, these businesses are generating a significant amount of revenue.
This time, Chambers said he already sees the next technological wave.
"Web 2.0 and collaboration will be the biggest drivers for our business over the next five to 10 years," he said.
Credit: Cisco invests in the future despite economic pressures from CNET News.com
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