Cisco invests in the future despite economic pressures

Cisco has been affected by the economic slowdown, but the company is returning to its old playbook, which includes investing in new markets to spur growth in the future.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
2 min read

There's no doubt the battered economy is affecting technology bellwether Cisco Systems, but the company is looking to the future with plans for big investments across its portfolio in "adjacent markets."

On Tuesday, Cisco reported that earnings for its fourth fiscal quarter 2008 were up 4.4 percent to $2.0 billion on revenue that climbed 9.9 percent to $10.36 billion. The results were in line with analyst expectations, but were a far cry from the company's results during some of its best quarters when the economy was strong and healthy.

As for the future, Cisco's CEO John Chambers said he expects Cisco to continue to be affected by the downturn in the economy, and he projected sales would grow by about 8 percent in the first fiscal quarter and by about 8.5 percent in the second fiscal quarter.

He declined to give guidance for the second half of the fiscal year, because he said the economic outlook is likely to change in the next six months. Still, Chambers reaffirmed his long-term guidance for the company of growth between 12 percent to 17 percent a year.

While the company waits for the economy to turn around, Cisco is preparing to make heavy investments in new markets to prepare itself for when customers begin spending again.

This means that the company will invest in new markets that are adjacent to existing product lines in all its major customer segments from the home network to the data center, from small and medium businesses to the enterprise, and from its commercial businesses to the service provider market, Chambers said.

"We'll partner big to big, and acquire big to small, or big to medium," he said. "So you could see us partner with an IBM or a Microsoft or an Intel. And we'll acquire more like a Scientific Atlanta or a WebEx. My favorite kind of company to acquire is one with 100 engineers who have a hot product they are just about to release."

Cisco has weathered several economic downturns in the past. And in the past when times have been tough, Cisco has ramped up investments in new markets to fuel growth for the future. So far the company has executed this strategy extremely well, spawning several new revenue streams that have gone on to become revenue generators. For example, Cisco's unified communications business and its IP telephony businesses were areas where Cisco invested during previous downturns. And today these businesses are paying off generating a significant amount of revenue.

This time around, Chambers says he already sees the next technological wave.

"Web 2.0 and collaboration will be the biggest drivers for our business over the next five to 10 years," he said.