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. Cisco gets nearly 60% of its sales from the Americas.
Cisco's revenues were up a solid 7% in fiscal 2012 (ended July 31) to $46 billion as product sales increased 5% and sales of services rose by more than twice that amount. The company's net income jumped 24% to $8 billion that year following a dip in 2011 as profits were impacted in part by more than $900 million in restructuring charges associated with an effort to bring down operating expenses and reduce sales costs.
Bright spots for 2012 were Cisco's Asian markets (product sales increased in Japan, China, and Australia by 27%, 17%, and 12%, respectively) and more than 85% sales growth in the data center segment (driven primarily by Cisco Unified Computing System products). Its core routing and switching products grew as well -- 2% and 3%, respectively.
In response to declining profits and stock prices in fiscal 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 discontinued its consumer products such as the popular Flip video camcorder and its high-end consumer videoconferencing product. It also agreed to sell its Linksys unit, which sells networking products to consumers.
In addition to the core routing and switching products, Cisco is also focused on becoming a leader in the fast-growing market for next-generation data center products. Geographically, the company is investing in emerging markets such as Russia, China, Brazil, Mexico, and India.
Mergers and Acquisitions
Cisco is a highly acquisitive company, bolstering its offerings with purchases both large and small. In mid-2013 it purchased enterprise IT energy management firm JouleX for about $107 million. The privately held company complements Cisco's EnergyWise technology. Also that year it agreed to acquire data virtualization software firm Composite Software. Also that year, it agreed to acquire 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 2012 Cisco closed one of its largest transactions ever when it paid about $5 billion to buy UK-based NDS Group, a provider of software and content security products, such as cards and set-top boxes, for pay-TV operators. Besides ramping up Cisco's video services, such as its Videoscape streaming platform, NDS gave it greater access to emerging markets such as China and India. Major NDS customers include BSkyB, DIRECTV, and Vodafone. Also that year, Cisco bought Pennsylvania-based Lightwire, a developer of optical interconnect technology that supports higher bandwidth in networking applications at a lower cost; ClearAccess, a developer of software used in provisioning and network management applications; and San Francisco Bay area-based Truviso, which provides software for real-time analytics and reporting. It ended the year by purchasing cloud networking firm Meraki for some $1.2 billion.
The company made a host of acquisitions in 2011 and 2010 as well, including two large ones in 2010. The $3.4 billion cash deal for TANDBERG, a Norwegian competitor in the videoconferencing market, 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. Starent Networks, which Cisco acquired for $2.9 billion, provided IP-based mobile infrastructure products to help wireless carriers handle the increasingly large volumes of data used by mobile customers.