March 4, 1997

The Good, The Bad And The Valley

Eric Ellis San Jose

Cisco Systems' CEO, Mr John Chambers, has had better days in business in Silicon Valley than last Thursday.

Firstly, Mr Chambers, one of the most powerful men in the Valley, received news that his two most threatening competitors, 3Com and US Robotics, were merging in a $US7.5 billion ($9.6 billion) deal.

Then his doctor rang to say his son needed surgery for a badly broken leg. And then - bad luck always comes in threes - as he was mapping out a futuristic Start-of-Millennium Vision for his company, the electricity supply in Cisco's head office went down, taking the company's computers and databank with it. There was no auxiliary power back-up. And it wasn't even lunchtime.

Few in the market have heard of Cisco Systems - it has spent less than $US10 million on advertising - but fewer still have not been touched by its reach.

Indeed, anyone working in an office that has communicated via computer with a colleague has probably used a Cisco product.

Like the dominant software giant Microsoft and the chip maker Intel, Cisco is what Wall Street calls a "technopolist". It is one of Silicon Valley's most successful and largest firms, and boasts a market capitalisation of nearly $US50 billion, bigger than General Motors.

Cisco controls 80 per cent of the market for the "plumbing" of computer communication systems, the routing and networking that enables electronic mail to be sent from Adelaide to Zanzibar, or a Web page constructed in Moscow to be read in Melbourne.

But it is deeply unfashionable, except to those who have followed its meteoric rise from 1992 when it had just $US300 million in sales to this year's expected $US6 billion. Since 1990, Cisco's share price has increased 80 times -a Wall St darling that grows by acquiring start-ups with the newest, sharpest technology. And it has created dozens of millionaire employees.

In the beginning of an Internet age where its exponents are trying to figure out how to make money from what remains a free and over-hyped medium, Cisco counts profits of $US1 billion.

And most of it is made, sold and sent via computer in a San Jose "manufacturing" facility about the size of a three-storey office building.

Cisco's origins date back to 1984 when Stanford husband-and-wife professors Leonard Bosack and Sandy Lerner invented a router which enabled the university's various terminals to communicate.

The invention was effective enough that other universities picked it up by word of mouth, as did a number of Fortune 500 companies. Bosack and Lerner sold out in 1990, a year before Mr Chambers joined from IBM and Wang Laboratories.

Mr Chambers has ridden the birth and boom of the Internet, with Cisco's routers and networks perfectly poised to seize the hype. Today some $US1 billion of its sale comes from visitors to its web page, making Cisco the most successful store front on the Internet.

But Mr Chambers is convinced the Internet has barely touched its commercial potential.

"I think there is going to be a huge amount of money and productivity to be made from the Internet," he said. "It will change completely the way you work, live and play; global competition the way it's never occurred before."

He says the US Robotics/3Com merger is a challenge to Cisco but that all parties are positioned to grow from the market.

Although he sees the US market growing at around 50-70 per cent annually, he believes Asia-Pacific to be the "future powerhouse of the world". That's why he was hooked last month up with Malaysian Prime Minister Dr Mahathir Mohamed's MultiMedia Super Corridor. Mr Chambers joined technology's other leaders, Microsoft's Bill Gates, Oracle's Larry Ellison, Netscape's Jim Barksdale and Sun Microsystem's Scott McNealy for a summit on Dr Mahathir's big idea.

Dr Mahathir plans to launch Kuala Lumpur into the 21st century with the MMSC and the so-called new city of Cyberjava and has invited Cisco to make Malaysia its Asian base. But like Cisco's embarrassment last week, Mahathir's MMSC looked less visionary only a week after it was announced when Malaysia was disabled in a day-long power outage.

To Mr Chambers and Dr Mahathir's joint credit, they have soldiered on and Cisco has signed on as one of Dr Mahathir's anchor founders in the MMSC, presumably when the power gets fixed on both sides of the Pacific.