ITU: Cisco's Chambers Hints at More M&A

GENEVA -- ITU Telecom World 2009 -- Cisco Systems Inc. (Nasdaq: CSCO) CEO John Chambers is in a bullish mood, talking about signs of economic recovery and the potential for further international acquisitions to add to last week's Tandberg ASA (OSE: TAA) announcement. (See Tandberg Deal Boosts Cisco's Video Plans and Cisco Bets $3B on Tandberg .)

Addressing a small group of journalists here in Geneva, Chambers said that, while many of his customers aren't seeing a turnaround in the economy yet, he is confident that conditions are improving. "I'm an optimist on the economy," he stated. "The trends are towards an upturn."

And he's optimistic that, while so many acquisitions fail, the Tandberg deal will succeed because of the product fit and the corporate culture at the Norwegian firm, which he became aware of as an acquisition target because "my customers told me to [buy] it, just like they did with Flip and Scientific-Atlanta." (See Cisco's Latest Buy: Flippin' Sweet and Cisco Banks on Video Growth.)

That optimism goes against his view that acquisitions need to be close to home to stand a good chance of working: Cisco has not acquired a listed company outside the U.S. before now. "The risk of acquiring outside your home country is huge. It increases the business risk. But innovation is global," and Cisco has a good track record of making acquisitions work. "About 90 percent of acquisitions in this market fail, for one reason or another, but more than 70 percent of our acquisitions have exceeded [the] expectations we presented to the board."

So, when it comes to major international acquisitions, Tandberg "will not be our last," Chambers said.

Chambers is focused on making Cisco the go-to company for two main capabilities: collaboration and video. "Video is the killer application," he proclaimed. And he repeated what he's been saying about collaboration technology: that it's been boosting Cisco's own productivity, letting the company tackle 30 priorities in a year instead of one or two.

He said that using TelePresence had changed the way Cisco does business as well as the pace of its business. "I don't know how we ran the company before [TelePresence,]" he quipped.

Tandberg is about as large an acquisition as Chambers is comfortable with. "Partner big-to-big, buy big-to-small. I like the size of the acquisition we just announced, or small startups that have just 100 engineers. In our alliances, you will see us getting tighter with [partners such as] Accenture , EMC Corp. (NYSE: EMC), Wipro Ltd. (NYSE: WIT)... Large acquisitions just don't work."

Chambers expects to see more M&A activity in the telecom market as carriers start to spend again. "Service provider networks are getting hotter," so the prospects for increased spending by carriers in the next 12 months are increasing, he noted. And as capex increases, he expects to see further consolidations across the communications systems market, with Cisco playing its part.

— Ray Le Maistre, International News Editor, Light Reading

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