Cisco Systems routes packets and routs competitors with equal efficiency. Dominating the market for Internet Protocol-based networking equipment, the company makes and sells routers, servers, security devices, Internet conferencing systems, set-top boxes, and other networking equipment to businesses and government agencies. The company also provides consulting services and offers products for a growing array of household, industrial, medical and other gadgets that connect to the Internet. Cisco sells its products primarily to large enterprises and telecommunications service providers, but it also markets products designed for small businesses. Cisco Systems was founded in 1984 by Stanford University graduates.
While the Americas is Cisco's largest market, accounting for nearly 60% of its sales, about half its employees reside outside of the US. Cisco's US headquarters is in San Jose, California. It also has headquarters in Amsterdam and Singapore. Cisco has a Globalization Centre East campus in Bangalore, India. The company has other significant operations in Belgium, China, France, Germany, India, Israel, Italy, Japan, Norway, and the UK.
Cisco's revenue dropped 3% in 2014 (ended July) to $47 billion, as product sales (accounting for 77% of revenue) fell by 5% while sales of services rose 4%. Product revenue decreased throughout the world, including a 5% drop in the US, the company’s biggest market. Service revenue grew across all of Cisco's geographic segments, but not as vigorously in 2014 as in 2013. Cisco’s net income fell more steeply in 2014 than its revenue with a 21% drop to $7.8 billion. Along with lower revenue, the company spent more in 2014 on research and development, mainly for salaries for employees who joined through an acquisition, and more on sales.
Cisco's dominant market position in switches and routing and aggressive pricing strategy have helped it to gain market share from rivals Juniper Networks and Alcatel-Lucent. In addition to the core routing and switching products, Cisco is developing products and services for data center, software, security, and the cloud. It is restructuring engineering and sales units to foster a more comprehensive view toward developing and marketing products. Data center and security were bright spots in the company’s products segment, both posting double-digit growth in 2014. Geographically, the company is investing in emerging markets such as Russia, China, Brazil, Mexico, and India.
Citing a challenging and inconsistent global economy, especially in emerging markets like China (a growth driver for Cisco), the networking giant in 2014 announced it will lay off 6,000 employees, about 8% of its global workforce. The move follows nearly 12,000 job cuts in the past two years. Shifts in the networking market, with some large enterprise companies opting to buy their equipment from low-cost Chinese vendors, is putting the competitive heat on Cisco.
The company adheres to an aggressive growth strategy, making numerous acquisitions in high-growth segments, such as cloud and mobile.
Mergers and Acquisitions
Cisco is actively acquisitive company, bolstering its offerings with purchases both large and small. In mid-2014 it paid $175 million for Tail-f Systems, a Swedish company that provides multi-vendor network service orchestration for traditional and virtual networks. The acquisition will boost Cisco's cloud virtualization offerings.
Cisco also closed the acquisition of Metacloud,which deploys and operates private clouds for organizations. Metacloud's OpenStack-based cloud platform will push Cisco's strategy to build the world's largest global Intercloud.
The company was even busier in 2013 when it bought five companies. They included San Jose-based Insieme Networks, a privately-held developer of application-centric infrastructure products, in December. In October the company purchased New Jersey-based WHIPTAIL, an all-solid-state array vendor, for about $415 million in cash. Cisco will use WHIPTAIL's capabilities to enhance its Unified Computing Systems, a rack that combines servers, storage, and networking, and which is sold into the data centers of large companies. Also in October Cisco bought cybersecurity firm Sourcefire for some $2.7 billion, its largest buy of the year. IT security firms are a hot commodity, and Sourcefire fits with the company's strategy to boost its holdings in the area. In mid-2013 Cisco purchased enterprise IT energy management firm JouleX for about $107 million. The privately held company complements Cisco's EnergyWise technology. Also that year it acquired data virtualization software firm Composite Software.