Cisco may be the poster child for what's ailing Wall Street, but customers maintain
they are largely unconcerned about their primary vendor's long-term health. Which
isn't to say they don't have questions.

"[I'm] unfazed by the financial issues surrounding Cisco," says Bill
Homa, CIO of Hannaford Brothers, a supermarket management firm in Scarborough,
Maine. "They're essentially our sole vendor for our LAN/ WAN communications
and will remain so."

Homa sees Cisco's struggles as "partly their fault, partly the economy's
fault," but he does not foresee any negative effects on his company's future
deals with the network vendor.

Cisco has indicated that its U.S. enterprise business will be down 20% in the
third quarter of this year compared with the second quarter, while its service
provider sales will drop by 40%. The fact that Cisco's struggles lie more in
the carrier market is another reason Homa isn't worried.

"As far as our [IT] expenditures, we've accelerated our spending with
Cisco, primarily because of the deals that are available," Homa says. He
presumes those bargains are designed to drive up the vendor's lagging sales.

Jim Olson, CIO of Waterbury Hospital in Waterbury, Conn., relies on Cisco for
most of his data network, and doesn't anticipate that changing. Olson notes
that when he looks at his other IT assets, he sees names such as Dell and Hewlett-Packard,
companies that are also having sales slumps.

"I believe it's a market thing," he says. "I'm just as confident
in Dell as I am in [HP or Cisco]."

Olson also sees Cisco's bloated inventories as an opportunity to upgrade his
network.

"I say to myself, 'Wow, I wonder if they're going to have a fire sale
with these flooded inventories. What could I pick up that's really good equipment
that has the three-to-five-year life span I need?' "

This year and last have been a tale of two markets for Cisco. In 2000, the
company enjoyed sequential quarterly revenue growth between 13% and 16%. Now
the vendor anticipates revenue will be down 30% in its third quarter, while
it takes a restructuring charge of up to $1.2 billion and an excess inventory
charge of $2.5 billion. Cisco will also cut 8,600 jobs.

An IT executive from a large New England manufacturing company has only one
major worry relating to Cisco's health.

"As long as Cisco keeps up its customer service" there will be no
need to panic, the executive says. Although Cisco's job-cut news is not a good
sign, he doesn't anticipate any drop-off in support . . . at least for now.
While Cisco may not have the most advanced technology, its customer support
sets the company apart from other vendors and is part of the reason why Cisco
accounts for "over 99%" of the network gear in his firm, this executive
says.

"If they drop back technologically and customer service gets really poor,
maybe that's a time to consider looking elsewhere," he says. "But
we're so deep into Cisco right now that there would have to be a really compelling
reason to do that."

Another reason he is not worried is that Cisco's revenue shortcomings are mostly
in the service provider market, which he says is "no skin off my nose."

As to how Cisco got itself into trouble, the executive says the company may
have been too active in acquiring new technologies last year. By April 2000,
Cisco had acquired nine companies - this year, it has bought none.

"Cisco could have been more conservative," he says. "It will
be interesting to see how they act now that they have to behave like a real
company."

He also hopes that if Cisco decides to scale back product offerings, it will
decide to focus more on improving its enterprise product lines.

Another Cisco user, a CTO of a multinational software company, also believes
Cisco may have gotten away from its bread-and-butter trade: switches and routers
for companies and the Internet.

"Cisco is in no danger of losing its niche [business] of making the routers
that connect businesses to the Internet," he says. "Cisco and Cisco
IOS have become part of the industry standard." But he questions why the
company got so involved in technologies such as IP telephony and videoconferencing.

» posted by ITworld staff

Network World

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