Cisco Expects to Expand Market Share

SCOTTSDALE, Ariz. – Communications equipment maker Cisco Systems Inc. said on Tuesday the prospects for growth in the economy and industry were unclear, but it still expects to expand its market share and make several small acquisitions to fill in gaps in its product portfolio.

Cisco, which makes gear that powers the Internet, said the U.S. market is ``still struggling'', but it has seen some strength in Europe. Asia has had a mixed performance, with China feeling some of the ``stress'' from the U.S. economic downturn. Japan will likely see three to five years of ''challenging times'', it said.

``I'd like to say I knew where the economy is going ... but there's still limited visibility,'' Cisco Chief Executive John Chambers said at the Salomon Smith Barney 12th annual Entertainment, Media and Telecommunications Conference in Scottsdale, Arizona.

``Visibility is still limited, and it is so with most of my customers,'' Chambers said. ``Customers are saying 'We're planning conservatively and acting accordingly.'''

Cisco had seen stable product orders from June through September and that continued through the end of December, Chambers said.

``We'd been booking linearly and that continued again in November and December,'' Chambers said Tuesday.

Linearity refers to the smoothness of incoming orders, which allows companies to run their businesses with more predictability and ultimately more profitably.

Chambers said he sensed a palpable feeling of negativity throughout the equipment market and among customers in January 2000, but the environment today was less worrisome.

Cisco and other equipment makers suffered last year as corporate customers delayed or canceled technology purchases and telecommunications companies slashed their capital spending budgets in the economic downturn.

``This year is a little different. (Customers') budgets are set conservatively, with the flexibility to go up,'' he said.

Cisco said last month it was optimistic the downturn had ended, but ultimately time would determine whether order stability the company had seen indicated that a rebound was near.

Chambers declined to comment specifically on the health of Cisco's business in the fiscal second quarter, which ends on Jan. 26, but he expected the company to gain ``dramatic market share.'' The company has promised that market share gains would not come at the expense of profit margins.

``We're growing ahead of the market and gaining market share on almost all major competitors,'' Chambers said. ``We've focused the whole company on profit contribution. We used to focus on revenue growth. Now we're really focused on profits,'' he said.

Cisco, which has more than $19 billion in cash, reiterated it would likely make eight to 12 small acquisitions this year, using a combination of cash and stock, to add products or services to its portfolio that its customers crave, Chambers said. The acquisition targets will, ``depend on what customers want,'' he said.

The company will likely expand its presence in the storage business, but will likely grow on its own or through a partnership rather than an acquisition. Cisco also may expand its consulting services, but it will limit its role to providing only specialized, high-end services, he said.