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Optical/IP

Cisco Chills on Acquisitions

These days, you can often tell a great deal about a company by looking at what they're not doing. That's why it's interesting to hear Mike Volpi, senior vice president of Cisco Systems Inc.'s (Nasdaq: CSCO) routing technology group, weigh in on issues such as Cisco's activity in acquisitions and vendor financing, two areas where Cisco has benched itself in recent months.

As Cisco went about establishing itself as a supplier of telecommunications equipment to carriers, Volpi, an eight-year Cisco veteran, helped by pinpointing which companies Cisco should buy as it entered new markets. And, by acquiring startups and financing or leasing money to upstart telecom carriers, Cisco created a name for itself among the dominant equipment vendors such as Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT).

Harsh economic times, however, have curtailed Cisco's romp through the service provider market, especially given the number of Cisco-backed carriers that have recently filed for bankruptcy protection (see Cisco-Backed CTC Is Bankrupt, Cisco-Backed Cambrian Is Bankrupt and Cisco's Learning Experience).

Volpi says Cisco is not doing any new CLEC financing now, though it remains obligated to some carriers as they hit milestones in previously existing agreements. "Everybody did it in our industry, including Juniper Networks Inc. [Nasdaq: JNPR]," Volpi says. "But our focus is now more toward the incumbents."

During its early days as a telecom equipment supplier, Cisco picked the right equipment to sell, but hadn't developed strong ties to incumbent carriers at the CEO or operations level. Volpi says Cisco has become much more focused in that area and that "the approach is paying off."

"You probably won't see a lot of orders in the next six months or a year," he says. "But it will pay off."

One specific choice Cisco has made in its pursuit of the service provider market is to not focus on developing a Class 4 or Class 5 replacement switch. "If an incumbent wants to offer more voice services, their best bet is to stick with what they already have," Volpi says.

Another tool Cisco is keeping in the shed, for now, is its ability to acquire startups. Volpi says Cisco doesn't acquire companies to consolidate market share; rather, it buys so it can enter new markets. "The environment we live in right now, it's very difficult to identify growth markets. There are very few.

"And when you cannot pinpoint your growth markets, you can't use the tool -- the M&A tool."

While admitting that not all of Cisco's acquisitions have been world-beaters, he explains that Cisco's philosophy on the matter was built on two key factors. First, the acquisition has to be strategic. Second, it must be operationally sound.

"The people have to stay, they have to be productive," he says. "The sales people have to be able to sell the products. Also, what role do the executives play? How committed are they? It's as much a personality question: Does the person want to come over and be a part of Cisco?"

Regarding Juniper's recent acquisition of Unisphere, Volpi says the jury's still out. "Undoubtedly, strategically it's a great acquisition. It's a very good fit and there's some degree of overlap, but it's a manageable degree of overlap.

"Operationally? We'll see. There's some strong personalities at both companies, and they have attempted a true merger-type scenario. A lot of the sales management derives from Unisphere and a lot of the engineering from Juniper.

"And they'll have to make some key decisions about their software strategy. Their public positioning has been JUNOS, JUNOS, JUNOS! Now they have JUNOS and UNOS or whatever they call the Unisphere thing."

Editor's note: Light Reading will publish more excerpts from its sit-down chat with Volpi and other Cisco executives later.

- Phil Harvey, Senior Editor, Light Reading
www.lightreading.com Movers and shakers from more than 100 companies – including Cisco Systems – will be speaking at Lightspeed Europe. Check it out at Lightspeed Europe 02.

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maryhadalambda 12/4/2012 | 9:32:59 PM
re: Cisco Chills on Acquisitions He went shopping on the shareholders' dime for companies which were little more than a few hot buzz words and a neat powerpoint presentation. That's why it's Volpi who's been benched. His job now is to teach industry press about new technologies. Those who can, do; those who can't, teach.
FiberGuy 12/4/2012 | 9:32:57 PM
re: Cisco Chills on Acquisitions see subject
netskeptic 12/4/2012 | 9:32:57 PM
re: Cisco Chills on Acquisitions > He went shopping on the shareholders' dime for
> companies which were little more than a few hot
> buzz words and a neat powerpoint presentation.
> That's why it's Volpi who's been benched. His
> job now is to teach industry press about new
> technologies. Those who can, do; those who
> can't, teach.

Come on, comparing to guys doing similar job at LU and NT Volpi's record is simply great.

Thanks,

Netskeptic

UncleBond 12/4/2012 | 9:32:55 PM
re: Cisco Chills on Acquisitions
> That's why it's Volpi who's been benched

On the contrary, Volpi is being rotated around different groups within Cisco to train him as a potential successor to Chambers.
/ub
aswath 12/4/2012 | 9:32:53 PM
re: Cisco Chills on Acquisitions Yes. For me it is news that Cisco will not focus on developing a Class 4 or Class 5 replacement switch. "If an incumbent wants to offer more voice services, their best bet is to stick with what they already have," Volpi says.

Hope that vendors of these switches will focus on providing the feature set that were promised by VoIP proponents.
Kevin Mitchell 12/4/2012 | 9:32:49 PM
re: Cisco Chills on Acquisitions Those who can, do; those who can't, teach.

Very nice sentiment, Mary. I suppose you are self educated and view the role of teacher as useless?
rjmcmahon 12/4/2012 | 9:32:47 PM
re: Cisco Chills on Acquisitions In my opinion, this indicates a few possibilities and none of which are positive.

o I/O technology providers believe they have a losing hand. Partnering with monopolists may seem like their only choice. They will have no legacy and only severe pain ahead if they make this choice.

o SBC will be laying off many, many employees in order to try to become "competitive". Unfortunately, business cultures are not so easily changed and such an attempt is destined to fail.

o Technology providers and bit distributors have decided the only way to support their cost strucutures is to partner w/each other and then blindly support the pirating from the content refineries. Unfortunately, stealing from others is an economic system rife with conflict and does nothing to enable production.

One has to wonder how long it will be before many of the youthful executives are replaced with seasoned, grey haired, businessmen.
eyesright 12/4/2012 | 9:32:43 PM
re: Cisco Chills on Acquisitions This should be interesting.

Mostly what you get from Cisco when they call on you is a boatload of arrogance. Looks like a big time retreat from the tried and true Cisco statement "IP is the answer, now what was the question?"
BobbyMax 12/4/2012 | 9:31:58 PM
re: Cisco Chills on Acquisitions Cisco always wanted to be called itself as telecom equipment supplier. It has led others to believe that Cisco has the same equipment as Lucent and Northern Telecom. This statement is farthest from truth.

Cisco does not have in-house capability to develop Class 4 or Class 5 switches.

Cisco always portrys capabilities far more than it can deliver. Often timers Cisco's product do not satisfy the quality and feature requirements in most cases.

Cisco is not paying any attention to its fast swindling stocks. If the stock descends, Cisco even could go out of business.
gea 12/4/2012 | 9:31:56 PM
re: Cisco Chills on Acquisitions Yes, Cisco is well knwon for foney and junky equipments. It is a fact that many Cisco telco boxes do not even take real electric power. Instead, they use fake electrons and generate fake heat to seem like they are functioning when they are in fact not.
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