Greg Enright: Paying the price of Cisco

Last year, a purchase by Cisco Systems Inc. of a tiny, US$150-million maker of metropolitan network technology would have caused barely a ripple on the networking seas. The firm was buying so many companies at that time, such a purchase would have been considered merely ho-hum.

But this month’s announcement that John Chambers and Co. had blown the dust off the Cisco wallet and snapped up San Jose-based AuroraNetics was a bit of a tidal wave. That’s because it was the company’s first purchase of the year, and was one of the only such moves made by any of the major players in the network equipment space in 2001.

The announcement came quickly on the heels of a declaration last month by Cisco’s chief strategy officer, Mike Volpi, that the firm would not be as free-wheeling with its acquisitions (which was merely a confirmation of a strategy that had become all too obvious four months before it was verbalized by Volpi). The new Cisco acquisition philosophy will involve making selective purchases in specific areas, namely voice over IP, storage high-end routing and metropolitan area networking.

Nothing wrong with that – from a Cisco point of view. Customers aren’t throwing money around like they did last year, so why should Cisco go on shopping sprees for products for which there is reduced demand? This “scaled-down” strategy, in fact, seems to be a sound, if not obvious, business maneuver.

For Cisco’s competitors, such an approach isn’t even a choice; it’s merely a fact of life with which they have to deal. Witness Lucent Technologies, which has to think about how to simply maintain its business, much less about how to grow it by making acquisitions.

But what does this stand-pat trend mean for customers? For those that stopped buying the makers’ equipment, not much. They’re just trying to survive themselves, especially many carriers. But for the more stable firms that have always employed sound equipment-purchasing strategies, and who are in little danger of going under in the foreseeable future, the trend is bad news. They can expect to see Cisco place less importance on innovation in a number of areas, including those spaces in which the company has said it will not be making as many acquisitions, such as optical cross-connect tools and unified messaging systems.

If Cisco had kept its head and employed a more conservative approach to acquisitions last year, perhaps it could have afforded to be more aggressive in this area today. Instead, the company went about as crazy as a 13-year-old in a mall with the parents’ unlimited credit card in tow. Now the bill has arrived at the mailbox, and like the steamed parents who open the envelope, level-headed Cisco customers are the ones who must now pay the price.

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Jim Love, Chief Content Officer, IT World Canada

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