Cisco Systems routes packets and routs competitors with equal efficiency. Dominating the market for Internet protocol-based networking equipment, the company provides routers and switches used to direct data, voice, and video traffic. Other products include remote access servers, IP telephony equipment, optical networking components, Internet conferencing systems, set-top boxes, and network service and security systems. The company sells its products primarily to large enterprises and telecommunications service providers, but it also markets products designed for small businesses and consumers such as routers, modems, and home network management software. Cisco gets more than half of its sales in North America.
While Cisco's product sales were up 6% in 2011 and sales of services rose by more than twice that amount, the company's profit margin declined for the year (after a boost in 2010) due in part to more than $900 million in restructuring charges associated with an effort to bring down operating expenses and reduce sales costs in the long term.
In response to declining profits and stock prices in 2011 caused by global competition, reduced spending by public sector and consumer customer segments in particular, and a decline in the performance of the switching product segment due to product transitions, the company divested or exited non-core product areas to focus on its central routing and switching products and related services. Restructuring efforts included implementing a voluntary early retirement program, elimination of some jobs, and simplification of its geographic reporting structure.
Cisco also streamlined its sprawling organization around key customer segments -- enterprise, service provider, and partners. The company announced that it would discontinue consumer products such as the popular Flip video camcorder, and its high-end consumer videoconferencing product, which will be folded into its business telepresence division.
Bright spots for 2011 were Cisco's emerging markets and the new products segments which each experienced a 14% increase in sales. Looking ahead the company is focusing on maintaining its hold on the routing and switching markets while continuing to invest in new or adjacent markets, particularly with the video, collaboration, data center virtualization, and cloud computing sectors.
With the global economic climate somewhat improved, Cisco got back into the M&A game in a big way in 2010 with its purchase of TANDBERG, a Norwegian competitor in the videoconferencing market. The $3.4 billion cash deal supplemented Cisco's high-end TelePresence systems with TANDBERG's lower-end line, which ranged from PC-based conferencing capabilities to more sophisticated gear, less expensive than Cisco's offerings. Cisco formed its TelePresence Technology Group around the former TANDBERG operations.
On a smaller scale that year, Cisco bought CoreOptics, a German-American developer of integrated circuits and optical network transponders capable of delivering high-speed data transmission rates, for about $99 million. With global IP traffic projected to grow 40% per year due to high demand for cloud computing services, mobile data services, and video streaming, Cisco can find plenty of applications for the CoreOptics technology. The deal also boosted Cisco's presence in Europe.
In another move to expand beyond its traditional networking role in 2010, Cisco bought ExtendMedia, a maker of content management systems (CMS) software used to create and deliver video content to computers and mobile devices; its customers include AT&T and Paramount Pictures. The CMS software complements Cisco's own IP video product line, particularly its next-generation video platform for service providers known as Videoscape. As consumers move away from simply watching cable or TV, they expect to be able to watch high-quality video content from any source on multiple devices. Toward the end of the year, Cisco acquired Inlet Technologies, a maker of digital media processing and delivery hardware and software systems.
To expand its Smart Grid business unit in 2010, Cisco bought Arch Rock, a developer of wireless technology for IP-based metering infrastructure systems. Late that year the company acquired LineSider, a maker of network management software used in cloud computing infrastructure applications, to supplement its network provisioning development efforts.
In 2011 Cisco acquired California-based Pari Networks in a move to improve its ability to provide customized network services to its clients. Pari Networks specializes in security risk and policy compliance management software tools that enable businesses and communications service providers manage the setup of their network systems. Also that year the company paid $95 million in cash to buy North Carolina-based digital media processing specialist Inlet Technologies. The deal added adaptive bit rate technology to its Videoscape TV product, enabling the platform to throttle the quality of streaming video to a variety of devices in real time depending on the capacity of the data connection.
Cisco continued its 2011 acquisition spree when it bought privately held newScale, a developer of software that provides a service catalog and self-service portal to IT organizations that want to select and manage cloud services within their business. The deal supplements Cisco's existing software delivering cloud computing services. Also that year, it acquired the UK-based AXIOSS service management business from Comptel for $31 million. AXIOSS contributes to Cisco's Prime network services management products with ordering and fulfillment automation.
Cisco additionally announced the acquisition of San Francisco-based software startup Versly in 2011. Versly's application is designed to enable more integrated collaboration between users of Microsoft Office products as they work collectively on projects that require the group to stay updated on everyone's progress. Cisco intends Versly's technology to act as a bridge between the Office suite and its own platform to extend functionality for its existing users, improve its appeal to new customers, and better compete with Microsoft.
Late in the year, Cisco bought Massachusetts-based video delivery software company BNI Video, which augments Cisco's Videoscape TV platform. BNI's software also helps video service providers, such as cable, telco, and wireless companies, to reduce expenses and gain simplicity and revenue options. Kicking off 2012, Cisco announced it would pay about $270 million to acquire Pennsylvania-based Lightwire, a developer of optical interconnect technology that supports higher bandwidth in networking applications at a lower cost.
Of course with market breadth comes an abundance of competitors, and Cisco faces fellow giants and swift upstarts across all of its market segments. It shares the Ethernet switch market with companies ranging from the pioneering 3Com (acquired by HP in 2010) to relative newcomer Extreme Networks; Juniper Networks made aggressive moves to wrestle market share in the core router market; and telecommunications leader Alcatel-Lucent is a formidable opponent in a number of markets, including IP telephony, where Cisco also competes with Avaya.