Cisco cacophony

Perhaps the most unenviable job today in
IT would that be of the CEO of Cisco Systems. After growing
between 50 to 70 percent in the last couple of years, it is about
to show a negative growth of a stunning 30 percent. In the
process, after adding on a very high number of people in the last
couple of years, the company is set to lay off 8,500 people. And
that is not all. It will also take a staggering $ 2.5 billion
charge to write down inventory. No wonder, there would hardly be
anybody who would be interested in taking over from John
Chambers, as the CEO of Cisco, if and when he decides to go.

In the last couple of years, Cisco had
become a juggernaut of the Internet era by using its high-value
stock much more effectively than other top IT companies. Rather
than develop technology internally, it has very smartly used its
stock to buy companies in excess of 70, since 1993. In the
process, it was able to get its hands on the very latesat in
networking gear. After which the company was using its aggressive
sales force to market the new technology to its corporate
customers and telephone companies. This turned out to be a very
smart and successful strategy and revenues went up to almost $ 19
billion in fiscal 2000, which was more than four times the
revenue it had been able to achieve just four years back.

Unfortunately, all good things come to an
end. Same thing happened with Cisco. Its stock is no longer the
high-powered currency it was till last year. After averaging 100
percent returns over the last five years, its shares at $ 18, are
off 78 percent from their peak. As a result, after buying 23
companies in 2000, Cisco is yet to make an acquisition in this
fiscal. And analysts say that it is high time the company grew
organically.

If Cisco can not buy as many companies as
it has done previously, it is likely to have a hard time
expanding into promised markets and returning anything close to
the dizzy growth of the past.

All this points out to the fact that
those who reach the summit at a dizzy pace also come down at an
equally fast pace. This is what Cisco has to realize and let
things cool down. In the meantime, it needs to take stock of the
situation and chart a new future course of action.