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Integrating acquisitions key to networking giant's growth

Integrating acquisitions key to networking giant's growth

Hardly a week goes by without Cisco Systems making another acquisition. The networking giant recently said it would buy Growth Networks, a silicon fabric maker in California for $US355 million. It will be Cisco's sixth acquisition in the past three months and its 21st since the beginning of 1999.

John Chambers, Cisco's president and CEO, said that the company plans to make another 20 to 25 acquisitions before year's end.

San Jose-based Cisco's acquisitions have contributed to its growth; for its second quarter ending January 29, the company posted a net income of $825 million on total sales that were up 53 per cent to $4.35 billion.

That's almost triple the $282 million the company netted in the same period a year ago.

But it isn't the frequency of acquisitions that makes Cisco successful - it's the company's ability to quickly integrate the technology of the acquisitions, said Jim Slaby, an analyst at Giga Information Group.

Cisco will frequently acquire a company after working with it in some partnering capacity, Slaby said. That gives Cisco management a feel for how well the company's technology will meld with Cisco's.

Michael Speyer, an analyst at The Yankee Group in Boston, said another attribute that keeps Cisco rolling is its competitive mind-set.

"When they enter a market, they aim to dominate it," Speyer said. "Cisco dominates Internet routing technology. In the Fortune 1000, they're the marketshare leader when it comes to [enterprise network] switching."

Analysts agree there's still plenty of equipment to be sold in the large enterprise space - Cisco said it increased its share of the enterprise market by 30 per cent this past year - but the big corporate market is becoming saturated to the point where Cisco will be forced to look elsewhere for opportunities to increase its revenue.

Indeed, the service provider space is where Cisco sees the most revenue growth going forward, said Peter Alexander, a Cisco enterprise networking vice president. That's especially true in converging technologies, such as voice over Internet protocol (IP), which lets voice and video travel the same pipes as data.

Analysts say these technologies won't gain widespread adoption until 2005. But Cisco believes they will take hold in the market much sooner.

Slaby said Cisco's key customers for converging technologies will be the next-generation service providers, who use packet technologies based on IP to transmit all information, including voice and video.

"These people are comfortable with packet technology," Slaby said. How-ever, a harder sell will be the big, traditional telecommunications pro-viders that are still locked into older circuit-switched technologies in a domestic market dominated by Lucent Technologies and Nortel Networks.


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