Cisco Wants Voice, Video Tech Firms in Its Shopping Cart
By Nick Wakeman
James Massa, Cisco director of operations
Emerging companies that specialize in voice and video technologies are high on Cisco Systems Inc.'s shopping list as the networking giant moves to add more of those capabilities to its commercial and government offerings.
The San Jose, Calif.-based company, which has made three acquisitions since January 1998 alone and 15 since January 1996, plans at least eight more acquisitions this year, company executives said.
Cisco will buy smaller companies that have promising technologies and engineering skills, said James Massa, director of federal operations for Cisco. "The people, the brain trust behind a company are the most important element," he said.
Mergers with equals are unlikely, Massa said, because there are too many problems with clashing corporate cultures and attrition.
The company's latest binge owes to a grand plan to expand commercial and government sales of equipment that carries voice, video and data simultaneously. Cisco President John Chambers wants to boost revenue from voice, video and data equipment from the current level of 30 percent to 50 percent of total revenues by 2001.
But Cisco management doesn't plan to stop there. "We'll probably make another five to 10 minority investments in other companies this year," Massa said.
In the federal sector, sales of equipment that allow all three types of information to share the same network accounted for about 7 percent of Cisco's $380 million in federal revenues for its fiscal 1997, which ended July 26. The goal for this year is 15 percent of revenues, Massa said.
Cisco's overall revenues for fiscal 1997 stood at $6.4 billion, a whopping 57 percent increase from the previous year's $4.1 billion.
More and more customers are looking for the cost savings that can come from using a single network for voice, video and data needs. By using a network that carries all three simultaneously, customers can save more than 25 percent of their networking costs. Using a single network for all three also adds new capabilities, company officials said.
"The numbers are very compelling, and the demand [for voice, video and data capabilities] has come back to the manufacturers of the technology," Massa said. "The end user is saying, 'I want one network that I can put all my [information] over.' "
Last year's acquisitions of Lightspeed International Inc. of Sterling, Va., and Skystone Systems Inc. of Ottawa relate directly to Cisco's search for technology capable of handling voice, video and data, Massa said.
As the company moves more deeply into this space, it will face competitors beyond the traditional data networking players, he said. They include companies such as Lucent Technologies of Murray Hill, N.J.; Nortel of Nashville, Tenn.; Siemens of Munich, Germany; and Ericsson of Stockholm, Sweden.
"They obviously have more of a voice heritage in their background," said Massa.
But Cisco's ability to integrate new technologies will serve it well as it competes with traditional voice networking providers, said Chris Stix, an analyst with the financial services company Cowen & Co. of Boston.
William McLeod photo
Cisco President John Chambers wants to boost revenue from voice, video and data equipment from the current level of 30 percent to 50 percent of total revenues by 2001.
"They have certain advantages, like a quicker time to market with new products," Stix said. "Cisco has 40 or 50 products they are going to voice-enable this year."
Traditionally strong data networking companies, like Ascend Communications Inc. of Alameda, Calif.; Bay Networks of Santa Clara, Calif.; Cabletron Systems Inc. of Rochester, N.H.; and Fore Systems Inc. of Pittsburgh, are likely to be takeover targets of voice networking companies, according to Massa.
But Cisco isn't likely to be on the buying end. "It doesn't make sense for Cisco to buy one of those companies, because they would not be bringing us anything new in the voice arena," Massa said.
In addition to saving networking costs, the convergence of voice, video and data in the federal market is being driven by rising government demand for video capabilities, industry officials said.
"Look at a military command. They want people talking to each other and showing things to each other," Massa said. The need for a multi-user video application is rare in the commercial market, but very common in the government, he said.
The government is adopting these capabilities faster than the commercial world, said Karyn Mashima, vice president of enterprise systems for Lucent Technologies.
"Conferencing and collaboration is less exciting [than other applications,] but over time they will become much more popular," she said.
Cisco has several projects under way in the federal government, including work to enable networks at the Defense Department, Federal Aviation Administration, Treasury Department, U.S. Postal Service and Veterans Affairs to handle voice, video and data, Massa said.
"The systems integrators are very important to us in this," Massa said.
Some of Cisco's partners in the voice, video and data integration field include: AT&T Corp. of Basking Ridge, N.J.; Bell Atlantic Corp. of New York; Enterprise Networking Systems of Redwood City, Calif.; GTE Corp. of Stamford, Conn.; Lockheed Martin Corp. of Bethesda, Md.; MCI Communications Corp. of Washington; Sprint Corp. of Kansas City; and TRW Inc. of Cleveland.
"Integrators have to manage these networks," Massa said. "The more that is going across these networks, the more important it is to manage them effectively and do the value-added services that are required of the end users."