[pic] In response to Cisco System’s annual financial conference held December 4, 2009, and the current financial and economic situation of Cisco Systems, this memorandum analyzes the forces driving Cisco’s current resources, plan for growth, and competition. Cisco Systems competitors are primarily in the computer networking equipment industry. Cisco Systems competes in other industries as well including: server and mainframes, satellite and broadcast network equipment, and wireless telecommunications equipment. Three of Cisco System’s main competitors can be identified as Alcatel-Lucent, supplier of high-tech equipment; Hewlett-Packard, comprehensive provider of hardware, software and services; and Juniper Network, designer and provider of network infrastructure for public and private access networks. Cisco believes that if it does not have strong competitors, it is not in high growth markets. Cisco’s competition is fierce and reactionary. Evidenced by HP’s acquisition of 3Com Corporation, responding to Cisco acquiring all-in-one data center, Unified Computing. [i] Cisco holds a competitive advantage in the technology sector, staying comparatively lean when complexity increases. Cisco has good integration with suppliers; in fact, other companies, such as Solectron and Jabil, produce much of what Cisco “manufactures”. Much of what Cisco produces is shipped from suppliers to customers. [ii] Cisco’s competitive advantage also lies in its large scale, delivering increased production efficiencies, strong purchasing power, and greater brand prominence. Cisco’s scale correlates to its sustainable performance as a result of distinctive, difficult to replicate capabilities. Examples of Cisco’s distinctive capabilities include the convergence of its application platform, services framework, and network infrastructure. Highlighted at the Cisco annual financial conference, the main avenues for Cisco’s continued growth are video, collaboration, and virtualization. [iii]The tech companies that will succeed in the next 10 years and remain successful are those that are best positioned to react to the massive shifts in the way consumers and businesses use technology. Coupled with continued growth through mergers and acquisitions, Cisco should expand into data integration and consumer market to best position itself as a technology firm for the future. Cisco’s recent acquisition of Tandberg, provider of tele-presence and high definition video conferencing, has shown Cisco’s move to better position itself in the video sector. Cisco has the opportunity to change telecommunications with the evolution of a unified collaboration market. As a result of Cisco’s effort, fewer large-scale providers will dominate the new market. With the acquisition of Tandberg, Cisco is positioning itself to create a single market for unified communications and collaboration. Using Metcalfe’s law, which states the value of a network grows exponentially with an increase in connected users (endpoints), can be applied to the value proposition of Cisco as a collaborative vendor. [iv] (See exhibit 1) Cisco debuted its Borderless Networks archetype on October 20, 2009, with a vision to help deliver services and applications to anyone, anywhere, and on any device. [v] Cisco will be able to capitalize on the growing importance of making virtual services remotely deployed and managed. The new Borderless Networks architecture saves energy cost using Cisco’s Energywise. According to the Marketwire Report, “With Borderless Networks, information technology managers can more easily manage, scale, govern and protect networks while tightening the synergy between users, devices, applications, and business processes”.[vi] With complete end-to-end connectivity questions arise for Cisco regarding how to limit access to resources? Cisco must ensure a way to prevent remote home desktops from copying information from offices. Products exist to provide comprehensive security; however, the problem focuses on the scale needed to protect the borderless network design. [vii] A secure IT infrastructure is needed to end the recession and address healthcare and environmental issues. Thus, IT infrastructure and cyber security is a growing concern of the government. On May 29, 2009, President Obama pledged to make securing the nations most vital networks a top economic and national security priority. [viii] Government participation will increase the regulation and security initiatives of Cisco. Cisco has been able to identify that corporations, individual users and telecom companies that provide Internet, mobile, and other data services are interlinked. [ix] Software technology, which uses a physical resource such as a server and divides it up into virtual resources, called virtual machines, provides server virtualization. Virtualization dramatically improves the efficiency and availability of resources and applications for organizations. Server consolidation helps reduce energy demands and overall IT costs. Cisco will be able to take advantage of its virtual computing power, accessing the joint venture it has established with EMC and VMware technology to boost virtualization technology. Barriers to entry exist for cloud computing and virtualization startups. Much weight lies in the fact that large established organizations, such as Cisco, are not likely to abandon their investment in previous generations of technology. Often the previous generations of technology are what fund new developments, and with high fixed costs there is limited entry of new players. For established companies there is always the risk that technological changes will nullify past investments. With Cisco’s new platform for growth accessing video, collaboration, and virtualization, their competition will be increasingly strong. HP and IBM produce their own packages of virtualization technology, while Microsoft and IBM market their own collaboration suites. [x] Cisco is a self-proclaimed growing machine. With some stability returning to the financial markets, Cisco ended its 4th quarter 2009 with a cash balance of $34 Billion. The financial situation of Cisco allows for the continual acquisition of organizations. This past fall, Cisco has led the technology industry out of the recession-induced lull in mergers and acquisitions announcing two big deals in October: wireless equipment maker Starent Networks for $2.9 billion and Norwegian video conferencing maker Tandberg for $3 billion. [xi] With cash on its balance sheet, Cisco should push into markets in transition, and quicken the pace of adoption of new technology by acquiring small market leading companies to build scale. [xii] An acquisition of a data sorting/integration company would profit Cisco, as information overload is a current and rising trend in technology. A recent report from Deloitte talks about “Cognitive Overload.” They estimate that the amount of worldwide information doubles every 18 months, and corporate files double every 3.5 years. [xiii] Various studies have demonstrated that too much unsorted information is worse than having not enough information. [xiv] Informatica (INFA) helps large corporate customers sort and view the vast streams of information that come pouring in from their employees, customers, and suppliers. There is discussion that Cisco, Oracle, or IBM may acquire Informatica. The acquisition of Informatica would be a wise move on behalf of Cisco, being that Informatica recorded a 26% rise in its third quarter earnings, combined with little debt and an anticipated 12% growth for 2010. [xv] Cisco should work to emerge itself in the consumer sector. Cisco, who built its business as Internet “plumbers” providing routers and switches for computers, needs to differentiate itself among competitors; not only for a place in the home, but also for control over the “networked home”. Elite companies like Apple and Microsoft thickly saturate the consumer electronic market; however, Cisco’s acquisition of Pure Digital Technologies in March 2009, placed Cisco on the consumer map. The $590 million acquisition Pure Digital, manufacturer of flip line digital camcorders, demonstrated Cisco’s serious commitment to escalating into the consumer sector. By acquiring a company that makes digital camcorder, Cisco is validating its support in video as a mechanism for growth. Cisco must consider new product offerings that leverage Pure Digital, such as a Flip high-definition camera with a scaled down Media Hub with a flip docking station and an HDMI connection to the TV. [xvi] Competitors in the home space such as Sony, Samsung, HP, and Microsoft reacted Cisco’s announcement of the Pure Digital acquisition. It is highly likely these companies may respond with acquisition of small consumer-experience companies like Kodak or Chumby. [xvii] Political and social risks arise with Cisco’s aggressive M&A strategy. Questions circulate such as, is the firm Cisco is contemplating a partnering strategy with involved in high profile or controversial activities? Another issue, previous touched upon, is security. Dealing with IT infrastructure and security, Cisco must be alert to changing government security regulations. As Cisco attempts to implement these strategic options for the future, they could potentially help to bring social networks into business. Cisco should continue aggressive growth, acquiring profitable companies. As proposed at Cisco’s annual financial conference video, collaboration applications, and server virtualization serve as key points for growth. If Cisco pursues these opportunities, along with enhancing their presence in data integration technology and consumer products, they stand to meet their 12%-17% growth goals for 2010 and lead the tech market.

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[i] Matsumoto, Craig. “Cisco: Yep, HP’s a Competitor”. Light Reading Telecom News Analysis. December 8, 2009. United Business Media Limited. http://www.lightreading.com/document.asp?doc_id=185555&print=yes

[ii] Valsilash, Gary S. “Leveraging the Supply Chain for Competitive Advantage”. Automotive Design and Production. April 2002. http://findarticles.com/p/articles/mi_m0KJI/is_4_114/ai_85009264/pg_2/?tag=content;col1

[iii] Gardner, David. “Video Driving Cisco Growth”. Information Week. 9 December 2009. http://www.informationweek.com/news/services/business/showArticle.jhtml?articleID=222001338 12 December 2009.

[iv] Dewing, Henry. “Cisco Continues March on Collaboration Strategy”. Forrester Research. 6 October 2009.

[v] Gardner, David. “Cisco Announces Borderless Networks”. Information Week. 21 October 2009.http://www.informationweek.com/news/infrastructure/routers/showArticle.jhtml?articleID=220800106. 11 December 2009.

[vi] “Cisco Ushers in Borderless Networks Era with Next Generation of Integrated Services Router”. MarketWire, Inc. 20 October 2009. http://marketwise.com/mw/ul_us_print.jsp?id=1064246. 9 December 2009.

[vii] McCloud, J.D. “Are Borderless Networks Possible? Praetorian Prefect. 15 October 2009. http://praetorianprefect.com/archives/2009/10/borderless-networks-yeah-but-wheres-my-border/ 9 December 2009

[viii] Krebs, Brian. “Obama: Cyber Security is a National Priority” The Washington Post”. 29 May 2009. http://voices.washingtonpost.com/securityfix/2009/05/obama_cybersecurity_is_a_natio.html

[ix] Das, Anupreeta. “Cisco leads Tech M&A charge out of Downturn” International Business Times. 14 October 2009. http://www.ibtimes.com/articles/20091014/cisco-leads-techa-charge-out-downturn_1.htm. 12 December 2009.

[x] Forrt, John. “Cisco: We’re a Growth Machine”. Fortune: Brainstorm Tech. 9 December 2009. http://brainstormtech.blogs.fortune.cnn.com/2009/12/09/cisco-were-a-growth-machine/. 12 December 2009.

[xi] Gardner, David. “Video Driving Cisco Growth”. Information Week. 9 December 2009. http://www.informationweek.com/news/services/business/showArticle.jhtml?articleID=222001338 12 December 2009.

[xii] Das, Anupreeta. “Cisco leads Tech M&A charge out of Downturn” International Business Times. 14 October 2009. http://www.ibtimes.com/articles/20091014/cisco-leads-techa-charge-out-downturn_1.htm. 12 December 2009.

[xiii] Warrior, Padmasree. “ 5 Predictions for the Future of Collaborations” The Platform”. 20 April 2009. http://blogs.cisco.com/news/comments/5_predictions_for_the_future_of_collaboration/. 11 December 2009.

[xiv] Ibid.
[xv] Copeland, Michael. “Tech Stocks for the Next 10 Years”. Fortune. 21 December 2009.
[xvi] Safran, Nathan. “Cisco Advances Further into the Living Room”. Forrester Research. 9 June 2009.

[xvii] Ibid.

Exhibit 1: Dewing, Henry. “Cisco Continues March on Collaboration Strategy”. Forrester Research. 6 October 2009.

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