Cisco sets sights on Net telephony

The company says it expects the market for Internet-based phone equipment to eventually make up 10 to 20 percent of its overall revenue.

2 min read
SAN JOSE, Calif.--Cisco Systems expects the market for Internet-based phone equipment to eventually make up 10 to 20 percent of its overall revenue, executives said Tuesday.

At a media briefing at Cisco's headquarters here, executives outlined a strategy to weather the U.S. economic slowdown by focusing on emerging hot-growth markets, such as devices that allow people to make phone calls over the Net, wireless networking, optical networking and networking hardware that speeds content over the Web.

Cisco has been hit hard by the slowdown, warning of flat growth over the next two quarters after it missed estimates for its most recent quarter in February. As a result, it's stock is trading near a two-year low, at just more than $18.

Net telephony equipment currently makes up a small percentage of Cisco's overall revenue--somewhere in the single digits, Chief Strategy Officer Mike Volpi said.

"We've seen 100 percent growth year-over-year. We want to grow that market share and sustain it over time," Volpi said.

Executives showcased the company's Net-based phone equipment for businesses and telecommunications service providers during the briefing.

Volpi reiterated that the company believes it can break away from its competitors by grabbing market share in Net telephony and other emerging markets. Despite the anemic economy, Internet telephony equipment is beginning to take off, said Volpi, whose company is the early market share leader.

Net-based phone equipment is a cheaper alternative to the traditional phone systems that businesses use, he said. And while growth in equipment sales to service providers is slowing down, Net telephony equipment isn't being as hard hit, he said.

Volpi added that growth will be driven by new phone features, such as unified messaging, which offers the ability to check voice mail, e-mail and faxes from a PC, phone or other device. He also touted "follow me" services, which allow workers to direct work phone calls to their cell phones, home phones or to other numbers, such as an assistant's.

Other future features include CD-quality voice-over-the-phone and speech-recognition software that allows people to check voice mail by speaking to their cell phones instead of pressing numbers to skip messages and fast forward, he said.

When most people think about phone calls over the Net, people think of cheaper long-distance phone calls, Volpi said. "It's not just about cheap minutes, but the new software applications and services."

Of the $775 million in revenue that telecommunications service providers spent on Net telephony equipment last year, Cisco ranked first in market share with 27 percent, followed by Lucent Technologies with 18 percent and Clarent at 13 percent, according to market research firm Synergy Research Group.

In the business market, where revenue reached $192.8 million last year, Cisco captured the brunt of the revenue with 62 percent, followed by 3Com with 32 percent.