Put-up or shut-up time at Cisco

Cisco has long been held up as the epitome of the 21st-century, cutting-edge company. But the glow that once surrounded Chambers' stewardship of the world's largest data networking equipment maker has faded.

Cisco has started to succumb to the same slow-growth problems that management ascribed to "Jurassic" companies like Nortel Networks and Lucent Technologies, once chided for the delight of the press.

It was naive to believe that Cisco would be immune to a larger downturn in the fortunes of the Internet and high-technology markets, not to mention the wider economic slowdown. But Cisco did not help itself by insisting until the last second--much like its Canadian counterpart Nortel--that it could somehow ride out the malaise without altering its expectations for growth.

Much like Nortel Chief Executive John Roth, Chambers continued to insist his company could thrive as others fell victim to the telecommunications downturn. Never mind the laundry list of struggling equipment makers taking huge stock hits or the numerous network operators--Cisco's customers--that veered dangerously close to bankruptcy, caught in a death spiral born of their insatiable appetites for loans.

And even in the aftermath of what was by then an assumed resetting of Wall Street expectations, Chambers did not help his cause by resorting to metaphors such as "100-year floods" and "peaks and valleys" to explain his company's woes. Anyone who has listened to Cisco's earnings calls for several years knows the company and its CEO like to create an authoritative aura, commenting on industry trends with a knowing voice.

No excuses this time, pal
But few Wall Street analysts or veteran technologists are going to buy a "100-year flood" as an excuse. The warm relationship Cisco has had with the financial community is showing signs of wear. Early converts to upstarts like Juniper Networks and Redback Networks may now be elbowed out of the way by a cavalcade of Cisco pessimists.

As an example, one analyst noted that "a company that has been preaching to the choir about the capacity of its management has proven it isn't perfect. Good management doesn't wind up with a ($2.2 billion) inventory write-off."

In fact, Cisco may now be considered the same type of slow-moving, bureaucratic company it used to mock when it first entered telecommunications from its roots building corporate networks. It has a depressed stock, a bloated payroll and a variety of technologies--many collected from acquisitions--that may not bear the fruit it hoped.

It has allowed a start-up, Juniper, to garner close to 35 percent of the high-end routing market, and others, such as Redback, to thrive in new places. It should be noted, though, that Cisco maintains an 80 percent lock on revenue in the overall routing industry.

Is there any good news? Of course. Cisco's office halls are filled with smart, albeit slightly stock ticker-shocked, people. The company has $18 billion in cash and assets locked away for a rainy day. It has a diverse board of directors that will not allow the company to make too many mistakes.

Cisco also could reap a windfall if what it calls "tornado" markets such as Internet telephony make up for slower-growing businesses. And it continues to be the dominant player in the construction of new Internet-based networks.

But if the malaise in the telecommunications industry continues to afflict Cisco and the industry as a whole for some time, as expected, many may view Nortel's Roth as the smartest CEO of them all. He's heading for the hills.