University of Houston

Case Study of Cisco Systems, Inc.

Nirav Sheth
INTB 3354: Introduction of Global Business
Professor Alana Aleman
April 8, 2015

1. Introduction
Leonard Bosack and Sandy Lerner, the married couple who met at Stanford University, founded Cisco in 1984 in San Francisco, California. During Cisco’s founding years at Stanford University, Leonard Bosack, Sandy Lerner, and a few others helped connect hundreds of computers throughout Stanford University on a wired network. They understood that they could take this technology and help other university and business, which helped Cisco grow into the $150 billion networking conglomerate it is today. Cisco multiprotocol router, Cisco’s first major product, was one of a kind package of a group of routers, switches, internetworking and other telecommunication devices that helps a group of computers multitask on a closed network. From here, Cisco’s management created a market where they could sell routers, switches, servers, data centers, and other telecommunication devices and software to help connect the world through electronic devices. Like many other technology companies, there were able to help bring this technology to the rest of the world because their hardware and software did not vary too much throughout different markets. They were able to become truly global and sell their products all over the world to enable billions of people enable them to connect into the digital world. (Boudreau) 2. Problems
Cisco first legal problem is with Stanford University. During this time, technology companies were starting to become a major player in the industry, and started to create patents for their inventions. Because Stanford University owned the rights to the router design, their newly formed company was sued for infringement of the original “Blue Box,” which was the original multiprotocol router. After a few years and legal negotiations, Stanford University gave legal right to Cisco to allow them use to the router design in exchange for licensing fees, royalty fees, free routers, and Cisco’s maintenance services. As the internet and digital industry has grown, Cisco was faced with countless amounts patent, infringement, and many other lawsuits. The main problems that Cisco has been recently facing are with political and social discussion of the internet. Many businesses and consumers have many sensitive information on local and cloud-based servers that can negatively harm many people. For example, Target’s data breach in December 2013 affected around 110 million customers and cost Target about “$252 million to manage the breach.” (Dezenhall) With Cisco being the leader in internet networking, Cisco is in the interesting position to help companies like Target prevent data breaches in the future. With examples like Target and countless others, the cyber security market is growing and desperately in demand. In addition to major corporations, governments like Israel also are in desperate need of a secure cyber space. Recently, Cisco and IBM collaborated with Israel’s cyber security firms and investors in order to help keep “cyberspace safe,” and encourage advancements of education and research (Petroff). Cisco have been addressing these issues by collaborating with countries and companies to develop a more secure network, acquiring cyber security companies like Sourcefire (Cisco) and investing heavily in cyber security firms, and educating the public about the importance of cyber security. 3. Implications
The biggest implication of Cisco and other technology companies is cyber security. Especially after Edward Snowden exposed the NSA classified documents, Cisco and many other companies has been trying to tackle the issue of privacy. To prove this, ETF (short for exchange traded funds) that specializes in investing in cyber security firms have been growing at a rapid pace since November 2014 (Lydon). Many countries, companies, and consumers became extremely dubious of how their information is being handled, which was one of the major risk factors that caused Cisco to cut their forecast in their revenue cycles. (Mewawalla) During this time, Cisco was also pushing products into a new market called Internet-of-things, or IoT. IoT is where they can connect all types of electronic devices like washing machines, refrigerators, and other everyday devices to a network to help automate and create more productivity. However, with privacy and cyber security becoming more of a concern especially many notable cyber security breaches including the Edward Snowden case and Target security breach, Cisco had to find a way to address this concern before trying to capture a $19 trillion IoT market.
In addition, President Barack Obama, Cisco, Microsoft, Google, Facebook, and other major technology companies have been going to conferences, most notably the first ever cyber security summit at Stanford University where President Barack Obama presented his views. This shows how the political climate has shifted toward more cyber security and privacy, which is why Cisco acquired Sourefire for $2.7 billion in order to address these issues. Recently, Cisco has not purchased companies and has been accumulating over $50 billion of cash on hand, so when Cisco purchased Sourcefire, it caused a lot of discussion in the news. With this acquisition, Cisco imagines that they can use Sourcefire’s security technology and “tightly integrate with Cisco with Cisco networking equipment.” (Cisco). Since this acquisition in 2013, Cisco shares have grown over 30% and have increased their forecast for the future earnings. Cyber security is a large risk for Cisco’s business, and Cisco seems to be actively addressing the problems with their acquisitions, products, and education through conferences and other means. 4. Analysis
Leonard Bosack and Sandy Lerner created a multiprotocol router that helped hundreds of computers on Stanford University communicate with each other. Now, Cisco’s and other similar companies’ technology has enabled the world to communicate with each other and provide people with information. At first, the concept of computers and the internet was foreign to most consumers. However, the consumers, especially in the United States, demanded for more technological advances that would create more productivity and efficiency. Resembling with Linder’s theory who said that countries with larger GDPs demand goods with better quality, consumers saw that technology could bring more productivity and consumers were willing to pay a large amount of money in order to bring productivity into their lives. This was also a major reason why valuations during the dot com bubble era were mind-blowingly high. This became evident when Cisco grew into the largest valued stock at over $550 billion on the New York Stock exchange because investors thought that Cisco was able to sell their products to private sector, public sector, and regular consumers for decades into the future. (Planes) As Cisco grew, they saw that other developed countries demanded the same technology that they provided were able to consumers of the United States. Cisco established subsidiaries in countries like Japan, Australia, and Hong Kong starting around March 1990 (Cisco Systems, Inc). This plan became extremely profitable for Cisco, which helped Cisco gain over 40% of their sales internationally by 1994. This also helped protect Cisco from foreign companies selling products that use Cisco’s intellectual property rights due to the growing demand for Cisco’s products and services. Overall, Linder’s theory helps illustrate the logical reasoning of why Cisco decided to expand internationally. 5. Conclusion
Cyber security is an ongoing concern for Cisco as long as internet is available. Technology is always advancing at an exponentially rapid pace that helped anybody with a personal computer have the ability to hack major corporations. With that said, I do believe that companies like Cisco and other technology companies can help provide advanced cyber security in the future. As previously stated, Cisco acquired a cyber-security company, Sourcefire, for $2.7 billion in order to help their customer protect them from expensive data breaches, and educating the public about cyber security. When their customers realize how expensive privacy and data breaches can become, Cisco was able to provide a solution for their customers due to their large position in the market. As the largest networking corporation in the world, I believe that as long as cyber security stays a major concern for Cisco’s customers, then Cisco will become one of the major leaders in cyber security and provide the best cyber security solution for their customers in the future. If Cisco fails at providing a viable cyber security solution, then they will lose a large market share to the networking company that is able to provide a feasible solution. This is because of how expense data breaches are and how important cyber security is to the public.

Works Cited
"Cisco Lays Out Plan for Sourcefire Acquisition." Cisco Lays Out Plan for Sourcefire Acquisition. IT Business Edge, 10 Oct. 2013. Web. 07 Apr. 2015. <http://www.itbusinessedge.com/blogs/it-unmasked/cisco-lays-out-plan-for-sourcefire-acquisition.html>.
"Cisco Systems, Inc. History." Funding Universe. Vol. 34. N.p.: St. James, n.d. International Directory of Company Histories. Funding Universe, 2000. Web. 6 Apr. 2015. <http://www.fundinguniverse.com/company-histories/cisco-systems-inc-history/>.
Dezenhall, Eric. "A Look Back at the Target Breach." The Huffington Post. TheHuffingtonPost.com, 6 Apr. 2015. Web. 07 Apr. 2015. <http://www.huffingtonpost.com/eric-dezenhall/a-look-back-at-the-target_b_7000816.html>.
Lydon, Tom. "As Cyber Threats Grow, Volume Soars in Cyber Security ETF." ETF Trends. Yahoo Finance, 17 Feb. 2015. Web. 07 Apr. 2015. <http://finance.yahoo.com/news/cyber-threats-grow-volume-soars-163023103.html>.
Mewawalla, Chris. "Cisco Faces Political And Technology Risks." - Cisco Systems, Inc. (NASDAQ:CSCO). Seeking Alpha, 15 Nov. 2013. Web. 07 Apr. 2015. <http://seekingalpha.com/article/1842222-cisco-faces-political-and-technology-risks>.
Petroff, Alanna. "Acquisition Fever Sweeps through Israel's Tech Sector." CNNMoney. Cable News Network, 22 Nov. 2013. Web. 07 Apr. 2015. <http://money.cnn.com/2013/11/22/technology/israel-tech-boom/index.html>.
Planes, Alex. "A Short-Lived Battle to Be the Largest Tech Company of All Time." Motley Fool, 25 Mar. 2013. Web. 07 Apr. 2015. <http://www.fool.com/investing/general/2013/03/25/a-short-lived-battle-to-be-the-largest-tech-compan.aspx>.