x
Optical/IP

Cisco's Rich Uncle

SAN JOSE, Calif. -- Networking equipment maker Cisco Systems Inc. (Nasdaq: CSCO) appears to have made it this far through the telecom recession with fewer dings and dents than its competitors.

Analysts say one reason for this is that, despite its aggressive marketing, no more than 20 percent of Cisco's business comes from telecom service providers, the group of companies hardest hit by the downturn. But Cisco also gets plenty of help from Uncle Sam, they say.

Cisco CEO John Chambers acknowledged during the company's second-quarter conference call that, depending on the quarter, between 10 and 15 percent of Cisco's U.S. enterprise business comes from federal government contracts. Although exact numbers aren't available, the available information suggests that the government spends hundreds of millions of dollars a year on Cisco gear.

Contrast that with competitors such as Juniper Networks Inc. (Nasdaq: JNPR), who doesn't report the government as one of its "10 percent" customers. Foundry Networks Inc. (Nasdaq: FDRY), however, says the government makes up between 8 and 12 percent of its business, depending on the quarter.

Even if Cisco gets the same proportion of government business as do its competitors, the numbers still stack in Cisco's favor. Foundry's second quarter pro forma revenues were $75 million for the three-month period ending June 30. Cisco's net sales for its most recent quarter, which ended July 27, were $4.8 billion.

As it turns out, Cisco's steady (and growing) government business could not have come at a better time. Had the U.S. government slowed spending as much as Cisco's other enterprise customers did, the current chapter in Cisco's history might be a much darker read.

Cisco won't confirm specifically how much of its sales come from the government, but it does acknowledge the importance of the government channel. "The federal government segment is an important part of Cisco's business, and we believe it will continue to be a strong vertical market," says Abby Smith, a Cisco spokesperson.

Though government spending is a bit lumpy throughout the year, analysts see the government being another big Cisco stabilizer during the company's current quarter, which ends in October. "We expect…enterprise booking [to be] flattish after a strong fiscal 4Q02 and federal spending pushing its contribution to total sales back over 10 percent in fiscal 1Q03," writes Gabriel Lowy, an analyst at Crédit Lyonnais Securities Inc..

With homeland security and updated databases a priority, government spending on technology doesn't look to be slacking. INPUT, a market research firm, predicts that government spending on information systems and services will grow from $37.1 billion in fiscal year 2002 to $63.3 billion in fiscal year 2007. The same firm says government spending on telecommunications products and services will grow about 8 percent a year, from $10.8 billion in fiscal year 2002 to $16.1 billion in fiscal year 2007.

Finally, it's no coincidence that Cisco CEO John Chambers has always made sure that he and his company are active in Washington, even when it was voguish for tech companies to ignore the political establishment.

As with any other large Cisco customer, Chambers stays personally involved in the relationship. Prior to President Bush's election, Chambers gave $1,000 to Bush's campaign (the maximum contribution allowed from an individual), and another $280,000 to the Republican Party, according to the Center for Responsive Politics.

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com
jgh 12/4/2012 | 9:55:08 PM
re: Cisco's Rich Uncle This is not surprising since the government awards contracts to major System Integrators such as CSC, EDS, etc. and these companies rarely recommend any vendor besides Cisco. They are familiar with the product line and feel comfortable supporting it. Also the government agency wants Cisco and steers the decision towards them.
The Cisco solution many not be the best or the most cost effective, but like they used say about IBM, no one gets fired for recommending or buying Cisco
52781 12/4/2012 | 9:55:06 PM
re: Cisco's Rich Uncle It really depends on the solution and Cisco Systems Inc has a good rapport with the Government.

Might I also it's support structure is excellent. As for its product(s)...easy to use, it works and its competitive. As a prospect buyer (Government) what more can you ask for.

-AB
hoffmane 12/4/2012 | 9:55:05 PM
re: Cisco's Rich Uncle Considering the amounts of money Cisco spends on Campaign funding is it any wonder they are favored.

They bought the Clintons completely (both), they even managed to buy an insert in Hilary's Millenium speach, so yes they can buy goverment access easily.

I am sure a large part of GW's war chest was Cisco contributions, and they probably backed Gore as well just to be safe.
Iipoed 12/4/2012 | 9:54:59 PM
re: Cisco's Rich Uncle Interestingly Foundry's loyalty in the Federal Govt. is from the Military. The majority of major contracts awarded have continually gone to Foundry. They usually range from 10,000 nodes to over 40,000 node networks. When the Govt goes out to bid directly these have mostly gone to Foundry based upon previous performance and implementation.


CSC and EDS only put in Crisco because they then push their maintenance services and other perceived value added "nonsense".
beowulf888 12/4/2012 | 9:54:59 PM
re: Cisco's Rich Uncle Well, Chambers has professed to be a Republican on several occasions.

But Cisco as a company has always had a foot in both camps, with donations measured in the hundreds of thousands of dollars. I don't think that's enough to "buy" the loyalty of a President (either Clinton or Dubya).

However, Cisco still has a lot of buzz and cache as a company. And politicians like to be seen hobnobbing with Chambers. So I think Chambers' (and Cisco's) influence is based more on psychological factors than financial factors (i.e. everyone wants a photo op with a winner).

Cheers,
--Beo

hoffmane wrote:
"Considering the amounts of money Cisco spends on Campaign funding is it any wonder they are favored.

"They bought the Clintons completely (both), they even managed to buy an insert in Hilary's Millenium speach, so yes they can buy goverment access easily.

"I am sure a large part of GW's war chest was Cisco contributions, and they probably backed Gore as well just to be safe."

TheChief 12/4/2012 | 9:54:47 PM
re: Cisco's Rich Uncle hoffmane wrote

How do you explain Hilary's Mention of Cisco in her Millenium speech, and did you know that Bill (and gore) helped Chambers into China?

Dubya just costs more, Enron bought him and the VP, Notice no arrests of Enron folk yet?, worldcomm and adelphia yes, charges, arrests et.al
Enron not yet!

The Clintons were just cheaper!!
==================================================

http://www.newsmax.com/archive...

No it was Clinton that was in bed with Enron. I knwo everyone tries to say BIG OIL has bought Bush and Chenney; however, if you look at the facts, it was Clinton and Gore that were. Most of the Gore family wealth comes for stock in BIG OIL Company Occidental. Years ago Occidental head Armond Hammer stated in public that he had Al Gore Sr. in his hip pocket. Under Clinton/Gore a large Navy oil reserve was sold to Occidental.
hoffmane 12/4/2012 | 9:54:47 PM
re: Cisco's Rich Uncle How do you explain Hilary's Mention of Cisco in her Millenium speech, and did you know that Bill (and gore) helped Chambers into China?

Dubya just costs more, Enron bought him and the VP, Notice no arrests of Enron folk yet?, worldcomm and adelphia yes, charges, arrests et.al
Enron not yet!

The Clintons were just cheaper!!

wpiman 12/4/2012 | 9:54:44 PM
re: Cisco's Rich Uncle If anything, Cisco should have used all its political might to keep Napster alive. At high points, Napster accounted for close to 40% of internet traffic in some areas. In colleges, even more. This was not some small and insignificant amount of traffic. By idly watching the clout of the RIAA drive Napster into the ground, Cisco simply allowed demand for its products to be stolen. As a market leader, they should have taken some initiative.
hoffmane 12/4/2012 | 9:54:42 PM
re: Cisco's Rich Uncle A little bird told me that Napster was not "liked" in Cisco, seems several "problems" appeared in networks when Napster was being used heavily.

I do not know if this is true, it is rumored to be so.....
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE