From Stanford Love Story to Global Giant An Analysis of Cisco Systems



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From Stanford Love Story to Global Giant


An Analysis of Cisco Systems

By Tera Stefanek

ISM 158, UCSC

February 6, 2004

OBJECTIVE OF THE PAPER
SECTION I: Telecommunications Network Equipment Industry


  1. Industry Profile

  2. Competitive Strategies in the Industry

  3. Porter Model Evaluation of Industry Forces

  4. Globalization of the Industry

  5. Importance of Information Technology to the Industry

SECTION II: Cisco Systems



  1. Cisco Systems Profile

  2. Market and Financial Performance

  3. Competitive Strategy Statement

  4. Significance of Information Systems

  5. Strengths and Weaknesses of Cisco

SECTION III: Structured Analysis of Information Systems Use



  1. Strategic Option Generator

  2. Roles, Roles, and Relationships

  3. Redefine/Define

  4. Significance of Telecommunications

  5. Success Factor Profile

SECTION IV: Final Analysis



  1. Success of Business Strategy and IT Use to Date

  2. Have the Above Factors Positioned Cisco for the Future?

BIBLIOGRAPHY

Objective of the Paper

This paper will examine the main business strategies and role of information systems used by Cisco Systems to gain and maintain a competitive advantage in the Telecommunications Network Equipment Industry. It is divided into four main sections. The first section explores the profile of the Telecommunications Network Equipment Industry, addressing competitive strategies within the industry, industry environmental factors in the United States Market, globalization of the industry, and the importance of information technology. The second section focuses on Cisco Systems, Inc., sketching the company’s profile, market and financial performance, competitive strategy, strategic use of information systems, and its strengths and weaknesses. The third section further analyzes the use of information systems by Cisco Systems, Inc., and the fourth section evaluates the success of Cisco’s business strategy and information systems to date and theorizes how effectively the company is positioned for the future.

Section I: Telecommunications Network Equipment Industry


  1. Industry Profile

The Telecommunications Network Equipment Industry covers the overlapping area between the Telecommunications Equipment Industry and the related Computer Networking Equipment Industry. Thus it consists both of “companies that design, manufacture, market, and distribute equipment for long-distance, local, and corporate telecommunications networks” and “companies that design and manufacture network communication devices, security hardware, routing equipment, and wireless networking products”.1 Most companies pick one of the two industry segments in which to concentrate their efforts, but with the increasing emergence of voice/data integration the two industries continue to find new common ground. Although there are some smaller, usually newer companies in the market, most of the main competitors are large and/or well-established enterprises such as Siemens AG, IBM, Dell, Lucent Technologies, and Cisco.



Figure 1

One of the largest and most profitable segments within the industry is Routing and Switching Equipment. Cisco continues to dominate this segment which contains its bread and butter products.2 Other companies active in this segment include: Dell, 3Com, Samsung Electronics, D-Link, Juniper Networks, NETGEAR, Enterasys Networks, and Extreme Networks.


The United States Market of the Telecommunications Network Equipment Industry experienced serious challenges beginning in 2001 with the burst of the dot-com bubble. However, the technology sector of the United States economy appears to be gradually gaining in vitality; furthermore in addition to the increasing amount of data generated by businesses, a “replacement cycle of buying new equipment” is predicted in the near future by the many companies who re-vamped their computing systems to avoid Y2K errors.3 As shown in figure 1 below, dollar sales for 2003 varied widely. The 2003 employee numbers shown give an idea of the relative sizes of these companies.






2003 Net Income (mil.)

2003 Sales (mil.)

Employees

3Com

($283.70)

$932.90

3,300

Apple

$69.00

$6,207.00

10,912

CIENA

$386.50

$283.10

1,816

Cisco

$3,578.00

$18,878.00

34,000

Dell

$2,122.00

$35,404.00

39,100

Extreme Networks

($197.20)

$363.30


890

HP

$2,539.00

$73,061,0

141,000

IBM

$7,583.00

$89,131.00

355,421

Lucent

$770.00

$8,470.00

34,500

Nortel Networks

$732.00

$9,807.00

36,960

Samsung Elec.

$5,878.50

$49,650.50

50,000

Siemens AG

$2,848.00

$86,467.00

417,000

SPX

$127.40


$5,045.80

24,200

Figure 2 “Computer Networking Equipment: Hoover’s Most Viewed Companies”
Due to the large and diverse nature of this industry, it can be helpful to compare the top direct competitors to narrow the focus of investigation. As shown below, Cisco Systems, Inc. most directly competes against Alcatel__17,350,000__22,811,000__29,486,000'>Alcatel, Nortel Networks, Lucent Technologies, Juniper Networks, and Extreme Networks. Each of these companies is active in the core network equipment market of routers and switches, and has expanded increasingly into new voice and data integration markets as new technologies developed.





Revenue: 2003

2002

2001

Cisco Systems, Inc.

18,878,000

18,915,000

22,293,000


Alcatel

17,350,000

22,811,000

29,486,000

Nortel Networks Corp.

10,569,000

17,511,000

30,275,000

Lucent Technologies, Inc.

8,470,000

12,321,000

21,294,000

Juniper Networks

701,393

546,547

887,022

Extreme Networks, Inc.

363,276

441,609

491,232

Figure 3: www.yahoo.finance.com

Perhaps most meaningful are the 2003 net income amounts, where Cisco and Juniper show the only positive numbers for the six companies depicted. The Telecommunications Network Equipment Industry still suffers from the trickling revenue streams as its customers spend cautiously or not at all.






Net Income: 2003

2002

2001

Cisco Systems, Inc.

3,578,000

1,893,000

(1,014,000)

Juniper Networks

39,199

(119,650)

(13,417)

Extreme Networks, Inc.

(197,180)

(183,962)

(68,883)

Lucent Technologies, Inc.

(770,000)

(11,753,000)

(16,198,000)

Nortel Networks Corp.

(3,266,000)

(27,302,000)


(3,470,000)

Alcatel

(12,070,000)

(4,934,000)

1,243,000




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