Cisco: A Victim of its Own Success

Forbes has an interesting take on the Cisco/Scientific Atlanta deal:

As is the case of so much in the technology world, the deal’s real promise lies in the future. Cisco reached out of its networking niche to buy Scientific-Atlanta, looking to better position itself as a broader provider of products and services to cable operators.
Cisco wants to provide all things networking to business and home, and it sees its ability to integrate a wide array of products as pivotal to its future success. This is a strategy that builds on the company’s already substantial size but doesn’t necessarily spur the rapid growth that investors want to see.
To this end, Cisco touts its so-called “advanced technologies,” which are business areas that the company predicts can eventually account for $1 billion in annual sales.
Since these businesses are but small pieces of the overall company, their growth rates are faster. Sales of Cisco’s six advanced technologies rose 25% in the previous quarter. Still, this segment makes up under 20% of Cisco’s overall sales.
Another area of concern for investors is the company’s international penetration. Cisco is able to draw only 17% of its sales from Asia-Pacific, including Japan–a level that’s held steady for the past two years. North America accounts for more than half of Cisco’s sales.
Order growth in Asia-Pacific came up strong in the most recent quarter, hitting 30%, a level that hadn’t been reached in the previous four periods.
Altogether, Cisco is a company that has become a victim of its own success. It dominates the networking market, so there is little left there for the company to capture. It is branching out into new but related areas via its advanced technologies, but those segments remain moderate contributors to the overall business.

Today is shaping up to be another good day for us. Stryker (SYK) and Zimmer (ZMH) have nice gains this morning. The rest of the market has barely moved.
This government reported that job growth is picking up after the hurricanes. The economy added 215,000 jobs in November, which is almost exactly what Wall Street was expecting. The unemployment rate held steady at 5.0%.

Posted by on December 2nd, 2005 at 11:12 am


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