Cisco Chills on Acquisitions
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
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