Convergence plays to Cisco strengths

26 Feb 2004

Seeming somehow impervious to the slings and arrows of a shifting technology market, Cisco Systems have gone from strength to strength since its initial public offering (IPO) in 1990. Naturally, it had its corporate feathers ruffled by the telco downturn but it still managed to start the month with its seventh consecutive quarter of profits above US$1bn. Net profit actually fell in the second quarter due to accounting charges but the company still saw sales increase 14.5pc to US$5.4bn.

So why has Cisco prospered while competitors have taken a much heavier hit? Mike Galvin (pictured), country manager for Ireland, puts it down to three main tactics: research and development (R&D), acquisition and strong partnerships.

“Our technology is supplemented by partner products that help us differentiate,” he explains, “and we have used our financial strength to take advantage of emerging technologies.”

Cisco is the eighth biggest global investor in R&D – not just among IT companies, but across every sector – ploughing its profits back in to the business. But it’s what Galvin describes as its “unique proposition”, the partner relationships that make the real difference. “We do not believe we can do this alone and we don’t believe we can be best at everything our customer requires,” says Galvin with refreshing candour.

Cisco operates what it describes as an “internet ecosystem”, where it develops its integration capabilities with the companies such as Oracle and Siebel. Strong sales of its core routing and switching products is now supplemented by advanced technology offerings, most successfully with internet telephony equipment but increasingly with storage and security products.

But the fact that the core business is in manufacturing routers and switches is fundamental to the firm’s continued success. As tech markets converge, blurring the distinction between information and communication technologies, organisations become increasingly dependent on vendors that can stitch disparate systems together. Tangible evidence of how this has helped Cisco is that 70pc of the routers that make global internet are based on its technology.

The emergence if the web and its protocols has been good for Cisco. Two-way voice transmission over a packet-switched internet protocol (IP) network has reinvented the communications market. “Everything is converging to IP,” says Peter Nichols, technical operations director, “our area of expertise.” Today, Cisco says it already has some 2.3 million IP phones in use by 10,000 global IP customers.

The next stage will be the evolution to video and Cisco already has a range of product including a next-generation IP phone that has a video facility. The adoption of IP as a cheaper and more efficient communications protocol is just one hot area for Cisco. Nichols also cites the proliferation of wireless local area network hot spots as good for business. The company makes IP handsets that could one day wander seamlessly between fixed and wireless networks.

On a local front, the rollout of IP services is gathering pace thanks to a strategic use of partners as Karl McDermott, systems engineering manager, explains: “Our engineers spent a lot of time educating partners about IP until about 18 months when we got them developing it for customers independent of us.”

Having engineers on the ground becomes even more crucial as the emergence of IP telephony brings integration challenges. The reality is that many organisations will mix and match the new communication platforms with existing public branch exchange systems and hands-on help becomes the order of the day.

In the current climate it’s unsurprising that Cisco has seen fit to expand into the security and storage areas. The company is pushing its Cisco Security Agent (CSA), a host-based intrusion prevention solution, but is recognises that it’s a tough pitch to compete with security specialists.

But it speaks volumes of the firm’s self-confidence that it will fearlessly compete on any number of fronts – including the consumer market. Cisco Ireland will be launching a range of consumer wireless products within three months, according to Mike Galvin, a move that follows on from last spring’s acquisition of home networking specialist Linksys.

Linksys product is already available in Ireland through computer store PC World but Galvin signalled an increased presence in local retail outlets and a commitment to lifestyle products that will see wireless impact on the home entertainment as well as home computing market.

By Ian Campbell