New King On The Block: Cisco

The
end of March, before the madness that crashed tech stocks on NASDAQ and in the
world. Well before the antitrust ruling on Microsoft, that company gave up its
top position in market cap to another far lesser-known infotech vendor. It was a
position that it, itself, had taken away from GE a year ago, pushing the stock
market up the value chain of technology.

The $12 billion Cisco Systems hit an astounding
$555 billion in market cap.

Let’s look at the parallels between the two
giants. Microsoft grew after taking a stake in every desktop PC in the world.
Cisco’s routers and related equipment are a key building block for the
Internet–and it has the bulk of that market.

Microsoft dominates the PC, and some other areas,
but it’s not quite an inseparable building block of the Internet. You can do
without Microsoft products on Internet servers and with network PCs, even at the
desktop. Dominating the PC is not as exciting as it once was, even if it gives
you much revenue. But worse, Microsoft has simply gone into too many areas.
"Where do you want to go today?" is an impressive vision that spells
omnipresence, but it can tend to defocus. They make a great office suite and a
frustrating operating system, both of which rule the world; but they’ve also
stepped into almost every application area they could think of, desktop or
server.

Cisco has an enviable mix: sound fundamentals,
clear focus, and a dominant share of some critical building blocks of Internet
networks. And two other traits. One, it tends to–as CEO John Chambers puts it–"forget
the fanfare". Cisco hasn’t played in the hype-ridden, brand-driven
consumer space, and that’s been a good thing for it. Even products not bought
directly by consumers have seen overexposure of marketing hype–take the
"Intel Inside" campaign. (Intel, for now, is focusing on repositioning
itself as a vendor of building blocks for the Internet.) But Cisco is in Fortune’s
top five list of most-admired US companies.

Two, Cisco is king of mergers, going for
strategic acquisitions with a savvy shown by few. It’s spent over $20 billion
on some 45 mergers and acquisitions–helped by its very strong stock. These
mergers are underlined by speed, zero layoffs and minimal turnover, and much
integration success. Cisco focuses on developing its core routing and related
technologies in-house, while acquiring other strategic technologies it needs,
but does not have.

I don’t go overboard on the value of market cap
fluctuations. But this event was symbolic–a move from the desktop age to the
network era, as the world’s leading desktop company hands over this Net-age
baton to a network company.

pkr@cmil.com

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