Cisco Iron Port

Cisco Systems:
New Millennium New Acquisition

Strategy?
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This case was written by Nir Brueller, Adjunct Professor of Strategy and Affiliated Senior Research Fellow at INSEAD,
and Laurence Capron, Professor of Strategy at INSEAD and Research Director of the INSEAD-Wharton Alliance. It is
intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of
an administrative situation.
Copyright 2010 INSEAD
TO ORDER COPIES OF INSEAD CASES, SEE DETAILS ON THE BACK COVER. COPIES MAY NOT BE MADE WITHOUT PERMISSION.
Returning to his office in San Jose from the Christmas break on 2 January 2007, Richard
Palmer, Senior Vice President of Cisco Security Technology Group, was still reflecting on his
intense discussions over the past few months with Cisco Corporate Development Group about
the ongoing negotiations with Scott Weiss, CEO of privately-held IronPort Systems of San
Bruno (California). IronPort was the leading provider of email security solutions, focusing on
spam and spyware protection for the enterprise market.
By 2007, Cisco was the world leader in networking technology for the internet, having grown
from two employees with one product in 1984 to more than 63,000 people, 200 offices
worldwide, and 50 product lines. Its product portfolio consisted of several categories: network
systems (routers, switches, optical networking), data centre (application networking services,
storage networking, data centre switches), collaboration, voice and video (voice and unified
communications, video, IPTV, cable and content delivery solutions), mobility/wireless
(access points, outdoor wireless, wireless LAN controllers) and security (firewall, virtual
private networks, security management). Cisco was also considered to be a best-in-class
acquirer of high-tech companies by industry experts as well as corporate strategy
practitioners.
Weiss had not yet accepted the handsome offer of $830 million made by Cisco. Palmer was
convinced that the price he had offered was justified by the great strategic fit of IronPort with
Ciscos portfolio. The security products and technology from IronPort added a rich and
complementary suite of messaging solutions to Ciscos industry-leading threat mitigation,
confidential communications, policy control and management solutions. At a meeting with
Ciscos Corporate Development team in December 2006, Palmer explained:
We feel there is enormous potential for enhanced e-mail and message protection
solutions to be integrated into the existing Cisco Self-Defending Network
framework. Using the network as a flexible platform to integrate IronPorts
technologies, Cisco will be able to build new security applications as customers
demands evolve1
Palmer wondered how he could further negotiate with Scott Weiss to clinch the deal. During
the last meeting, Cisco Corporate Development Group, which had forged a great reputation
over the years for providing discipline on the acquisition process, had made it clear that the
proposed $830 million was the walk-away price. Among the non-price factors, Palmer had to
negotiate a number of post-acquisition integration issues. In particular, he knew that
IronPort was keen on remaining a standalone business unit within Cisco. Weiss wanted to
retain the relationships and go-to-market strategies that he had built. Although the IronPort
acquisition offered opportunities to weave together the two firms technologies, it represented
a significant stretch from Ciscos security strategy, moving it from the network to the
application layer.2 Furthermore, despite Ciscos interest in IronPorts subscription-based
pricing model, it had no real experience with it. Lastly, there was also internal resistance
within IronPorts ranks to being integrated into Cisco.
Hagendorf Follett, J. (2007). Cisco Gets The Message With $830M E-Mail Security Acquisition.
ChannelWeb, 4 Jan,
http://www.crn.com/security/196800933;jsessionid=DL2OXYG2RW4KNQE1GHOSKHWATMY32JVN
http://www.ironport.com/company/pp_commweb_01-04-2007.html
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Palmer was wondering what would be the right integration approach for IronPort and how
much he should give up in the negotiation. Should Cisco depart from the tried-and-tested
formula for managing young high-tech firm acquisitions for which it had become so famous?
Should Cisco adopt an integration approach closer to its recent big acquisitions of Linksys
and Scientific-Atlanta, both of which were focused on the consumer market? IronPort, in
focusing on Ciscos core segment enterprise customers presented some unique
opportunities and challenges. While addressing these issues was important, Palmer did not
want the talks to lose momentum. He had made good progress so far and was hoping to come
to an acquisition agreement in the next few days, when IronPort and Ciscos employees
returned from the Christmas break.
Ciscos Early Years (1984-1993)

Cisco was founded on December 10, 1984 by husband and wife Len Bosack and Sandy
Lerner, two former Stanford University computer scientists whose efforts to enable email
between computers on different networks led to the invention of the first multiprotocol router.
This seminal breakthrough played a major role in fuelling the growth of the internet.
The first challenge came very early on when Len and Sandy failed in their attempts to sell to
existing computer companies the technology they had designed to connect two separate local
area networks (LANs).3 They decided to market their routers directly to universities, research
centres, government facilities and the aerospace industry. In 1986, Cisco shipped its first
product, a router for the TCP/IP (Transmission Control Protocol/Internet Protocol) protocol
suite. With just eight employees, Cisco managed to sell $1.5 million worth of routers in the
fiscal year ending July 1987.4 With limited financial resources, marketing relied on
approaching computer scientists and engineers via ARPANET (Advanced Research Projects
Agency Network), the precursor to the internet. In 1988, the company started marketing its
routers to mainstream corporations with geographically dispersed branches using different
networks.
To this end, Cisco had to further develop its technology and extend the range of
communications protocols it supported. Over time, its ability to support more protocols
translated into a differentiation advantage over other router manufacturers.5 By the late 1980s,
when the commercial market for internetworking began to develop, Ciscos reasonably
priced, high-performance routers gave it a head start over its networking competitors (Bridge
Communications Inc., 3Com Corporation, Proteon Inc., Wellfleet Communications). Cisco
was developing industry standards and now had a list of customers including the US Army,
Boeing, Hewlett Packard, General Electric and Morgan Stanley.
These early days, in which it had to survive on a very tight budget, shaped Ciscos frugal
nature for many years to come. In fact, to get the venture off the ground Bosack and Lerner
had to mortgage their house, run up credit card debts, and defer paying salaries to friends who
worked for them. For a while, Lerner even maintained an outside salaried job to supplement
the couples income.
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5
http://www.fundinguniverse.com/company-histories/Cisco-Systems-Inc-Company-History.html
ibid.
ibid.
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In 1987, when sales started growing quickly, Bosack and Lerner were forced to turn to
venture capitalists for support.6 Donald T. Valentine, the founder of Sequoia Capital, agreed
to invest $2.5 million in first-round financing in Cisco.7 As part of the deal he took over
management of the company and required the owners to sign that Sequoia Capital retained the
right to force the founders out at will.8 Valentine became chairman and quickly hired an
outsider, John Morgridge, a Stanford MBA and a veteran of laptop computer manufacturer
GRiD Systems Corp., as the companys new president and chief executive officer. Over the
next few years, Morgridge replaced top management with outside hires and in February 1990
Cisco went public. Six months later, following an ultimatum by seven of the companys vice
presidents, Lerner was let go. Shortly afterwards, Bosack resigned from the board of directors
and then left Cisco entirely.9
In the period 1991 through to 1993, Morgridge set the tone for Ciscos culture and operational
methods. He ran the business with an emphasis on cutting costs and made sure that Cisco
continued the strong customer focus that had enabled it to progress so rapidly in the mid 80s.
Morgridge built up direct sales to market the products to large corporate clients. At first,
Cisco focused on the high-end corporate network market, targeting corporations which
already maintained large internal networks. Few companies were able to offer the same array
of end-to-end networking services and products. Among those who could, Ciscos four largest
competitors were Lucent Technologies, Alcatel, Juniper Communications and Nortel
Networks. As operations expanded, Cisco started to face competition from innovative and
lean niche players such as 3Com Corporation and Bridge Communications Inc., notably in the
small- and medium-size business sector.
Ciscos Corporate Strategy (1993-1999)

As Ciscos client base grew, the companys greatest challenge became meeting customer
service and support needs. With the coming-of-age of the internet and the growing popularity
of corporate in-house intranets, more demands were put on Cisco to provide a complex
variety of networking solutions.10 To dominate such a market, Cisco executives knew that
they would not be able to develop internally all the technologies needed with enough speed,
especially with product cycles dropping below 18 months. In order to keep abreast of the
changes,11 Cisco resorted to external sourcing and set a relentless pace for acquisitions. John
Chambers, who joined Cisco in 1991 as senior vice president of worldwide sales and
operations and operated as John Morgridges right hand man for four years before replacing
him as CEO, observed:
We got very bold. We made the conscious decision that we were going to attempt
to shape the future of the entire industry. We decided to play very aggressively
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Poole, H.W., ed. (2005) The Internet: A Historical Encyclopedia. Santa Barbara, CA: ABC-Clio.
ibid.
ibid.
ibid.
Rifkin G. (1997). Growth by acquisition: the case of Cisco Systems. Strategy and Business. Booz Allen and
Hamilton, New York.
Mayer D, Kenney M. 2004. Economic action does not take place in a vacuum: understanding Ciscos
acquisition and development strategy. Industry and Innovation 11(4): 299325.
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and truly attempt in the networking industry what Microsoft did with PCs and
IBM did with mainframes.12
Facing pressure to provide a wide set of networking solutions and products, Cisco decided to
adopt General Electrics mentality of aiming for a 50% market share and a No.1 or No.2
position in every market it entered, avoiding markets in which it could not get at least a 20%
share right off the bat.13 Management created a matrix of emerging markets and niches in
which it had decided to become market leader. These markets were identified through
conversations with customers, reading the trade press, attending industry conferences and
listening to bankers and entrepreneurs.14
Once a market was identified, the next step was to determine its product, services and
distribution needs and choose the appropriate mode for getting the products developed and
sold. This could be done either internally, through joint development, or through acquisition.
Cisco preferred to use its internal R&D organisation for product development and used this
mode for 70% of its products.15 Nevertheless, the company understood that if it wanted to
dominate such rapidly changing markets, it could not hope to rely exclusively on internal
development. Therefore, Cisco created a rule of thumb that if it did not have the resources to
become a market leader within six months, it would look to buy its way in, which it did for
30% of its products. It also decided that time-to-market should be the underlying rationale for
its acquisitions, in light of Chambers view that, If you dont have the resources to develop a
component or product within six months, you must buy what you need or miss the
opportunity.16 Finally, Cisco adopted an interim mode of making minority investments in
several advanced technology companies prior to when their technologies were actually
needed. This enabled Cisco and target personnel to test the water with respect to working
together on a regular basis.17 However, special attention had to be given to the use of the right
governance mode in every case. Cisco preferred to pursue acquisitions only when their
underlying technologies were market-ready, in light of Morgridges belief that there was
nothing worse than big companies that over-invested in markets before their time.18
Ciscos strategic plan, crafted in 1993, consisted of four main components:19 (1) Assemble a
broad product line in order to provide customers one-stop-shopping for networking solutions,
(2) Systemise the acquisition process, (3) Define industry-wide software standards for
networking equipment, and (4) Pick the right strategic partners.
In January 1995, Chambers was appointed CEO of Cisco, with Morgridge becoming
chairman and Valentine vice-chairman. Chambers had been with Cisco since 1991, after
working for IBM and Wang Laboratories. His experiences had shaped his view of what a
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Hamilton, New York.
ibid.
ibid.
ibid.
Bower JL. 2001. Not all M&As are alike and that matters. Harvard Business Review, 79(3): 92-101.
Paulson E. 2001. Inside Cisco: the real story of sustained M&A growth. John Wiley & Sons, New York.
Morgridge JP, Heskett JL. 2000. Cisco Systems: Are you ready? (A): Case 9-901-002: Harvard Business
School.
Tempest N, Kasper C, Wheelwright S, Holloway C. 2000. Cisco Systems, Inc.: Acquisition integration for
manufacturing. Harvard Business School, Case No. 9-600-015, February 15.
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healthy corporation should look like, and helped him identify some of the challenges facing
Cisco:
"At the top of the list is how do you manage the growth? How do you really create
the culture of mergers and acquisitions and new ideas and keep your basic
strengths? How do you avoid missing the major technology changes that occur?
How do you avoid creating the hierarchy where an overhead structure supporting
your sales people and engineers becomes your bottleneck as you drive through it?
How do you avoid getting too far away from your customers? Do I think we could
trip in the future? Absolutely.20
Chambers believed that the new rules of competition demanded organisations built on change,
not stability; organised around networks, not a rigid hierarchy; based on interdependencies of
partners, not self-sufficiency; and constructed on technological advantage, not old-fashioned
bricks and mortar.21
During its early years, Cisco had been highly centralised in line with Morgridges belief that
centralised organisations enjoy scale and control advantages, which firms often forego by
decentralising too early.22 In 1995, Chambers started to decentralise the firm. Cisco
reorganised its engineering and marketing into three lines of business, each made up of two to
nine subordinate business units. The three lines of business, Enterprise, Small/Medium
Business, and Service Provider, helped Cisco re-align to optimally serve each of its major
customer segments. It was also in line with two of the core values underlying Ciscos success:
a strong belief in having no technology religion, and listening carefully to the customer.23
At the same time, however, Cisco decided to maintain some of its centralised functional areas,
including manufacturing, customer support, finance, IT, HR and sales. The company also
continued to rely on external partnerships for many of its activities. Its manufacturing strategy
was based on outsourcing most of its activities such as circuit board stuffing and testing to
contract manufacturers.24 It also continued to heavily rely on partnerships with other
organisations such as Telcordia, EDS, INS and KPMG Consulting for the provision of
networking services and solutions requiring extensive consulting, planning and integration
services.25
As the internet developed, Cisco increased its reliance on information technology to automate
many organisational functions and administer them online. These included employee services,
e-commerce, service and support, supply chain management, finance, e-learning and many
others. Once administered online they became standardised and extremely scalable. For
example, only two auditors were responsible for handling the payroll for 16,000 US
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25
Hamilton, New York.
Byrne JA. 1998. The corporation of the future. Business Week, 31 August.
O'Reilly CA III, Pfeffer, J. (2000). Cisco Systems: Acquiring and retaining talent in hypercompetitive
markets. Human Resource Planning, 23(3), 38-92.
School.
ibid.
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employees, with expenses paid within three days via direct deposit.26 Similarly, seven out of
ten customer requests for technical support were fulfilled electronically with higher
satisfaction rates than through human intervention. Using the network for tech support
allowed Cisco to save 1,000 engineers. As Chambers indicated: I take those 1,000 engineers
and instead of putting them into support, I put them into building new products. That gives
you a gigantic competitive advantage.27 Indeed, a cornerstone of Ciscos strategy was the
view of product development as a high leverage item, enabling Cisco to reap a significant
increase in sales.28
Cisco's Growth Through Acquisitions (1993-1999)

The genesis of Ciscos acquisition strategy can be traced to the way it handled the challenge
posed by the emergence of switching technology. In 1993, Cisco was in negotiations with
Boeing over a significant project, estimated at $10 million,29 including routers, access devices
and switches, to be integrated either by Boeings internal IT department or by a third-party
systems integrator.30 In the midst of the negotiations, Boeing had not only stated that it
preferred Crescendos low-cost, less functional products over Ciscos expensive and featurerich routers, but specifically indicated that Cisco would not get the contract unless they
worked with Crescendo products, either through partnership or purchase.31 Around the same
time, Ford Motor Company had also told Cisco that it was going to choose a new fast
Ethernet LAN technology in which Crescendo specialised, over Ciscos routers.
Although switches were less functional than routers, they were faster and less expensive.
Networking vendors, including Cisco, started to realise that switching products would have a
significant new market and turn out to be a disruptive technology with a potential to create
numerous opportunities for new entrants to challenge the established data communications
equipment firms, which had been slow to develop switches internally.32 Recognising this
threat, Ciscos management pondered a move into low-end LAN equipment through the
acquisition of established hub makers Synoptics or Cabletron.33 However, in light of the
inputs from Boeing and Ford, Chambers, Morgridge and Kozel (chief technology officer)
decided that they not only had to listen to their customers but that a strategy based on the
purchase of smaller, more innovative software companies made more sense than buying
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School.
Reese B. 2007. The legendary Mario rule at Cisco. Downloaded from:
http://www.networkworld.com/community/node/13508
Wuebker R, Navoth Z, Rao B, Horwitch M, Ziv N. 1998. Cisco Systems: The Internetworking Company of
the Future. Downloaded from: http://www.ite.poly.edu/Cisco_case_3.html
ibid.
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bigger, more established ones.34 This decision marked not only the genesis of Ciscos
acquisition and development strategy but also its transformation from a router company into a
full line network supplier.35
On September 21, 1993, Cisco announced the acquisition of Crescendo Communications,
located in Sunnyvale, California, for about $89 million. Crescendo Communications had only
$10 million in annual revenues, 60 employees, no manufacturing facilities and little
overhead.36 Wall Street perceived the price as exaggerated and Ciscos stock took a dip for
the first time. As John Chambers recalled, A lot of people thought we had lost our frugality
and direction.37
Cisco realised that in order to succeed it had to turn Crescendo into a separate business unit,
kept apart from Ciscos central engineering capabilities. It also noted that Crescendos
industry was fragmented because time-to-market was the overriding factor, hence only small
companies were fast enough to succeed.38 In addition to speedy development, Cisco realised
that scaling up would also require significant distribution, financial and manufacturing
strengths. Relying on Ciscos strengths in these areas, Crescendos networking products were
already selling at a $500 million annual run rate as early as 18 months after the acquisition.
By 1998, only five years after the acquisition, they accounted for $2.8 billion in annual
revenue.39 As Chambers put it, No small company could go from $10 million to $500
million in 18 months. They just cant scale.40 Morgridge generalised the rationale for this
type of acquisition:
"At the time we made our first acquisition we had a wonderful asset in the form of
a channel to sell, install, and service products for the global market. As a result,
there was tremendous leverage in acquiring a product that met the market
requirement and to put it through our channels. We can take [a new product] and
leverage it very dramatically. To a large degree that has been our strategy with
most acquisitions.41
Growing out of this successful first experience, Ciscos acquisition strategy focused mostly
on small acquisitions, believing that larger, more mature companies were difficult to
integrate.42 Initially, Cisco was even believed to follow a rule of acquiring companies with no
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R, Navoth Z, Rao B, Horwitch M, Ziv N. 1998. Cisco Systems: The Internetworking Company of the
Future. Downloaded from: http://www.ite.poly.edu/Cisco_case_3.html
Hamilton, New York.
ibid.
Hamilton, New York.
DePamphilis, D.M. (2005) Mergers, Acquisitions, and Other Restructuring Activities, Elsevier Academic:
Burlington, MA.
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more than 75 employees, 75% of whom were engineers.43 Such companies were not only
relatively cheap and easy to integrate but also enabled Cisco to successfully leverage its
unique complementary assets in sales and support to its existing customer segments.44 Over
time, the formula evolved into a systematic acquisition process, which Chambers often
compared to marriage:
As simple as it sounds, its like marriage. If you are selecting a partner for life,
your ability to select that partner after one date isnt very good. Lots of people in
the financial press say once Cisco does an acquisition it is a matter of
management execution as to whether the acquisition works or not. I argue with
that. I think the most important decision in your acquisition is your selection
process. If you select right, with the criteria we set, your probabilities of success
are extremely high. Its tough enough to make a marriage work. If you dont
spend a fair amount of time on the evaluation of what are the key ingredients for
that, your probability of having a successful marriage after one date is pretty
small. We spend a lot of time on the upfront.45
Ciscos selection process was built around a well-defined target: small companies, fastgrowing, focused, entrepreneurial, in geographical proximity and culturally similar to Cisco.
These targets, seen within the company as early-stage Ciscos and referred to as Cisco kids,
were optimally suited for Ciscos acquisition process:
Our ideal acquisition is a small startup that has a great technology product on
the drawing board that is going to come out 6 to 12 months from now. When we
do that, we are buying the engineers and the next-generation product. Then we
blow the product through our distribution channels and leverage our
manufacturing and financial strengths. However, we would not rule out larger
acquisitions if the industry changes faster than we expected or where there is
more of an integration than we expected. Do we have anything larger in mind at
the present? No. Our more typical acquisitions will continue to be smaller
engineering organisations. We will continue to go after private companies. You
can acquire them much quicker and with far fewer legal nightmares. There is also
a lot less risk in those types of deals. 46
To enhance the chances of synergy realisation, Cisco used four criteria for evaluating small
targets and a fifth for larger ones:
First, if your visions are not the same about where the industry is going, what
role each company wants to play in the industry you are constantly going to be
at war. There can be differences in technology visions or industry visions, so you
have to look at the visions of both companies and if they are dramatically different
you should back away. Second, you have to produce quick wins for your
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Eisenhardt, K. M. & Sull, D. N. (2001). Strategy as simple rules. Harvard Business Review, January: 107116.
Hamilton, New York.
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shareholders. If we did not produce a win with Crescendo in the first year, our
shareholders would have been all over us. And if it is only short-term, then it is
not strategic. Shareholders have to benefit from any acquisition. Third, you have
to have long-term wins for all four constituencies shareholders, employees,
customers and business partners. I know that sounds corny but it is true. Finally,
the chemistry has to be right, which is hard to define. The fifth element for large
mergers and acquisitions is geographic proximity. Geography is key. If you are
doing a large acquisition, the minute you get on an airplane, youve got a
problem. It is different if you are doing an engineering or technology acquisition,
because those can be remote. But if you are combining two large companies and
the centre of manufacturing or marketing is in San Jose, Calif., and you are in
Boston, what future do you have? It is very limited. 47
Indeed, Cisco strictly adhered to the selection criteria; if these were not in place, it preferred
to walk away from the deal:
Weve killed nearly as many acquisitions as we've made. We killed acquisitions
for those reasons even when they were very tempting. I believe it takes courage to
walk away from a deal. It really does. You can get quite caught up in winning the
acquisition and lose sight of what will make it successful. Thats why we take such
a disciplined approach. 48
The due diligence process was also carried out with integration in mind. It served the
company in assessing the different aspects of the target such as talent, technology,
management and financing, all of which were aimed at validating the selection decision and
facilitating later integration. Indeed, the two keys for successful acquisition, namely selection
and integration, were strongly tied to a thorough due diligence process. To ensure the success
of its acquisitions, Ciscos integration process was focused on three goals in descending
order of importance: (1) employee retention, (2) follow-up on new product development, and
(3) return on investment.49
Chambers regarded employee retention as a primary goal:
Most people forget that in a high-tech acquisition you really are acquiring only
people. Thats why so many of them fail. At what we pay, $500,000 to $2 million
an employee, we are not acquiring current market share. We are acquiring
futures.50
Indeed, turnover among acquired employees was only 8%, the same as for Ciscos long-term
employees,51 versus an average of 20% for other software and hardware companies.52 For
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Hamilton, New York.
ibid.
ibid.
ibid.
DePamphilis, D.M. (2005) Mergers, Acquisitions, and Other Restructuring Activities, Elsevier Academic:
Burlington, MA.
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example, in 2001 over 90% of the entire Crescendo workforce were still with Cisco, an
outstanding figure after an interval of eight years, which included the period of the technology
bubble of the late 1990s.53 With such retention figures, Cisco was able to insist that acquired
employees waive their accelerated vesting rights in return for a more gradual vesting
schedule. Accelerated vesting clauses, common in many employment contracts, were intended
to protect employees who feared that they might lose their jobs (and non-vested options) in
the event of an acquisition.54 Ciscos track-record of successful retention signalled that this
risk was very low.
In order to speed up the introduction of products from newly-acquired companies, Cisco
chose to apply its new product introduction (NPI) process to these products as well. This
called for incorporating cross-functional inputs from marketing, engineering and
manufacturing into product design, to ensure products functionality, manufacturability,
testability and cost-effectiveness.55 While Cisco aimed at quickly converting as many newly
acquired products as possible, it focused its efforts only on products at an early stage of
development.
One of the CEOs who had sold his company to Cisco described the post-merger integration
phase:
Cisco is really good at this probably better than any other hi-tech company
that I have seen. They call it the integration Jumbo Team: they come with a
jumbo, they land on you and they Ciscofy you.56
Another former executive testified to the post-merger experience of the targets R&D team:
It takes you a year to actually figure out where you are, because, for one thing,
they want you to continue working on the product, so you huddle back into your
own structure and you keep working on the product because you have a delivery
to bring about. It takes you a while to open up to other interfaces and figure out
how to manage or use the right leverage in this huge machine to get what you
want. It takes you about a year, and after a year you are fully integrated.57
While the development team was largely left autonomous, other functions within the target
were typically absorbed much faster (see Exhibit 1 for a chart on organisational integration58):
You (the target) start bringing people from other groups instead of recruiting
outside, and your manufacturing that you used to keep very close to you now joins
the general manufacturing of Cisco, sales joins the general sales, marketing has
some parts in other BUs as well because its combined with other things. So you
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ibid.
Interview on February 24, 2009.
Interview on March 2, 2009.
Yemen G, Chatterjee S, Bourgeois LJ. 2003. Cisco: Early If Not Elegant (A). Darden Business School,
Case No. UVA-BP-0446.
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start losing [your independent identity] and you start bringing other components
in, it becomes like any other group in Cisco.59
The key to generating a high return on investment was to quickly and effectively leverage
Ciscos access to customers to sell the acquired companys products, as Chambers noted:
The way we measure the success of small-to-medium-size acquisitions is
straightforward. Within three years, we would like to generate in revenue what we
paid for the company. If we do that, then the acquisition was a good, solid base
hit. If we do more than that say we do it in two years or even in one year then
the acquisition was a home run or a grand slam. Crescendo was a grand slam.60
Underpinning Ciscos unique acquisition strategy was a deep ecosystem involvement.61
Ciscos executives were also investors and members of boards of directors of startups and
venture capital firms in the ecosystem in which Cisco operated.62 This gave it an information
advantage which was difficult for its larger competitors to reproduce, as it required executives
who had experienced the startup process first-hand and were deeply involved in the startup
culture.63 Indeed, some years before, a study had identified within Ciscos ranks 35 vice
presidents (or higher) recruited through acquisitions, while Lucent, one of its major
competitors, and a multiple acquirer in the late 1990s, did not employ a single person with
start-up experience among its 20 top executives.64
During the 1990s, Cisco continuously stepped up its acquisition pace to keep ahead of its
rivals, fill the gaps in its product line, and enable it to provide a one-stop networking shop to
its customers.65 From one acquisition in 1993 and three in 1994, Cisco increased the pace of
deals to complete ten acquisitions in 1995 and 1996, the largest of which was that of
StrataCom, Inc. (See Exhibit 2 for a list of Ciscos acquisitions).
StrataCom was a public firm with more than a 1,000 employees, acquired in April 1996 for
about $5 billion.66 It was a leading supplier of ATM (with 40% market share) and Frame
Relay (22% market share) WAN Wide Area Network switching equipment, which could
handle voice, data and video.67 StrataCom was regarded as highly attractive to Cisco for both
its technological as well as marketing capabilities. On the one hand, Cisco was eager to
complement its portfolio with Frame Relay switching products, which were being rapidly
adopted by telecommunications companies. On the other, it was also interested in
StrataComs marketing clout, i.e., its close relationships with the regional Bell holding
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Interview on March 2, 2009.

Hamilton, New York.
ibid.
ibid.
ibid.
Bunnell, D. (2000). Making the Cisco Connection, John Wiley & Sons, New York.
11
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companies.68 The deal was thus seen as critical for Cisco in attempting to move beyond its
core enterprise segment into the area of telecommunications access providers currently served
by entrenched and formidable competitors such as Alcatel, Lucent Technologies Inc., and
Nortel Networks Corporation.69
Cisco promised the employees of StrataCom that there would be no layoffs and named
StrataComs CEO Richard (Dick) Moley senior vice president and general manager of the
newly created WAN business unit.70 Cisco planned to integrate StrataComs products with its
IOS (Internetwork Operating System), and import StrataComs traffic and quality-of-service
software into its own routers and switches.71 On the face of it, the two appeared to be
combined after only 90 days, a record-breaking speed. However, Morgridge later admitted
that it was difficult to integrate both the technology and the marketing sides, and that
integration took longer than the 90 days initially touted:
"It took a lot longer to assimilate StrataCom, a lot of technology our field force
had to learn. They were right next to us and we did a great job in integrating
manufacturing, services, purchasing.72
Other problems resulting from the acquisition started surfacing.73 To reassure its existing
customers, Cisco initially denied that there was overlap between Ciscos current ATM
offering (resulting from the 2004 LightStream acquisition) and StrataComs product line. But
a few months after the StrataCom acquisition Cisco discontinued the LightStream product
line.74 This not only upset existing customers but also demoted the Cisco employees of the
division developing these products. Another difficulty arose from the mismatch between
Cisco and StrataComs sales compensation schemes. This prompted the departure of several
members of the StrataComs sales team, who were joined by Moley. While some outsiders
believed that the main problem with StrataCom was that Cisco was purchasing a firm
embedded in a different market that it did not fully understand,75 Morgridge highlighted the
learning benefits from this experience:
"[It] was good because we gained insight on the unique challenges of doing a big
deal versus a small one. We felt pretty good with the small deals. Whenever you
feel like that, you better watch out.76
Cisco continued its blistering acquisitions pace in 1997 and 1998, announcing 14 more deals77
in an attempt to secure technology and scarce intellectual assets.78 During 1999 it became
68
69
70
71
72
73
74
75
76
77
ibid.
ibid.
ibid.
12
03/2010-5669
even more acquisitive, snapping up 18 companies and gaining a presence in two emerging
areas: fibre-optic networking and wireless networking (See Exhibit 3 for Cisco key financials
during the 1990s). In the frenzied bull market of high-tech stocks, Cisco found itself by early
2000 with a market value above $450 billion, making it the third most valuable company in
the world, behind Microsoft and General Electric.79 For a brief period in late March of 2000,
Cisco even ranked as the most valuable company in the world, with a total market
capitalisation of $555 billion. Rather than slowing it down, Chambers planned to increase the
companys acquisition pace, with the addition of as many as 24 companies during 2000.
Ciscos Strategy in the New Millennium

The aggressive acquisitive expansion was not trouble free, however. Some of the acquisitions
undertaken in 1999-2000 failed to create value for Cisco. For example, Pirelli Optical
Systems, acquired in December 1999 for $2.15 billion, represented a significant deviation
from Chambers principles.80 Headquartered in Italy, it was distant not only in geographic but
also in cultural terms. Its organisation proved to be very hierarchical and decision-making was
far slower than at Cisco. Finally, it was not a market leader in its domain. Though Cisco
would not confirm the success or failure of the acquisition, in mid 2001 the press reported that
the Pirelli acquisition had been unsuccessful.81 While the market in which Pirelli operated
doubled in size between 1999 and early 2000, Pirellis own market share was reported to have
dropped from 5% to 1% over the same period.82 In addition, by May 2001 Cisco confirmed
that five other acquisitions had failed to deliver value and had to be written off: Monterey
Networks, Clarity Networks, HyNEX, Maxcomm Technologies and Amteva.83
Several explanations have been posited as to why these acquisitions failed.84 First, it was
estimated that the dramatic acceleration in the pace of acquisitions from 1998 to 2000
overloaded Ciscos ability to undertake adequate due diligence. A second possible
explanation was that prior to 1997, with nearly all acquisitions made in emerging markets,
Cisco faced no entrenched competitors and thus leveraged its complementary assets to occupy
new market niches; then, as Cisco started entering segments with established competitors, this
advantage disappeared. Third, some of the new technological domains, such as optics and
wireless technologies, required other capabilities than Ciscos competencies, revolving around
networking-related hardware and software. Finally, as Chambers explained, during the
telecommunications bubble, stock values were increasing so quickly that Cisco had to acquire
firms that had not yet shipped a product, adding another dimension of uncertainty to whether
the product would actually come to fruition or not.85
78
79
80
81
82
83
84
85
ibid.
Paulson E. 2001. Inside Cisco: the real story of sustained M&A growth. John Wiley & Sons, New York.
ibid.
ibid.
13
03/2010-5669
The burst of the internet bubble in 2000 and the resulting telecommunications industry
slowdown in 2001 took Cisco by surprise. For the first time in its history, the company found
it difficult to grow its revenue base.86 (See Exhibit 4 for Cisco key financials after 2000). On
April 16, 2001, Cisco announced lay-offs of 8,500 employees, nearly one-fifth of its payroll,87
and a drop of 30% in revenues for the third quarter.88 Chambers referred to this period as a
100-year flood scenario.89 He decided to change Ciscos expansion orientation, which had
led to the acquisition of 73 companies between 1993 and 2000, replacing it with discipline,
order and restraint. The differences between the old and new approach were described by the
Wall Street Journal:
The old Cisco stressed increased revenue; the new Cisco demands profits. The
old Cisco favoured speed and internal competition; the new Cisco emphasises
deliberation and teamwork. The old Cisco devoured start-ups and raced to build
niche products; the new Cisco wants to create fewer, more-versatile products
internally. The old Cisco tried to do everything; the new Cisco is trying to figure
out what not to do.90
Indeed, it was time for Cisco to tackle some of its major problems. One of these was the
duplication of development efforts across the different segments, resulting in competition on
the same customer accounts between different Cisco teams. One of Ciscos executives at the
time recalled:
Cisco used to be a great company for entrepreneurs. You got a lot of freedom;
even if you were competing with the other business units within Cisco, so be it.
But this was before 2000. Everything changed in 2000. If you think about it, the
company was developing competing products, but the market was exploding and
was growing so fast There was a router, for example, that was developed for the
service provider market and [another one] for the enterprise market. The features
of these routers were extremely similar. There was no need to have two routers.
But Cisco was so successful in this and in that, that nobody bothered to ask: Why
are we doing that? I can tell you, for example, I was in two meetings with
customers where the customer came and said: You know, I already made a
decision that I will buy Cisco. There is this product that you are trying to sell to
me and there is that product. Why dont both of you go outside the room, make a
decision what it is that we should buy, come back to us, and we will buy whatever
you decide. It reached that point.91
86
87
88
89
90
91
Bhaskar, R. (2004). A Customer Relationship Management System to Target Customers at Cisco, Journal
of Electronic Commerce in Organizations, 2 (4), 63-73.
http://www.answers.com/topic/cisco
Bhaskar, R. (2004). A Customer Relationship Management System to Target Customers at Cisco, Journal
of Electronic Commerce in Organizations, 2 (4), 63-73.
Chatman, J., OReilly, C., & Chang, V. (2005). Cisco Systems: Developing a human capital strategy,
California Management Review, 47(2): 137-167.
Thurm, S. (2003). After the boom, Cisco is learning to go slow. The Wall Street Journal, May 6.
Interview on February 24, 2009.
14
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Chambers confessed that Cisco should

eliminate the problem of having separate teams working on similar products or
ideas. That, in turn, would help the company pitch a broad range of products to
customers. The customers were the ones saying: Your products are overlapping.
Wed like to see a better roadmap.92
These duplications stemmed from Ciscos previous reorganisation by customer segment
rather than by technology. To eliminate them, it was decided to re-consolidate the engineering
group. In August 2001, Chambers announced a major organisational restructuring that would
transform Cisco from a decentralised operation focused on specific customer groups to a
centralised one focused on technology. As Bill Jennings, a chip designer at Cisco, put it:
Weve rationalised the sins of the past seven years.93 Although Chambers understood that a
centralised, functional structure was necessary to avoid product and resource redundancies, he
also realised that it risked making the company less customer-focused.94
Ciscos year-on-year average sales growth of about 80% during the 1990s slowed to around
15% after 2000. The slowdown in its core markets of switching and routing forced Cisco to
seek new revenue streams by entering entirely new markets, such as consumer networking,
online video and web conferencing.95 The traditional acquisitions approach, focused on
product-development, was not suitable for entering new markets. According to Ned Hooper,
Ciscos head of Corporate Development, the move towards diversification required Cisco to
adapt its acquisition strategy:
We cant buy a company and tell it to do as we see fit if we dont have a true
understanding of the marketplace.96
While continuing the traditional acquisition approach in its core markets, acquiring 44
companies for an aggregate sum of about $2.5 billion over five years, Cisco spent more than
four times as much $11 billion on a mere handful of new-style acquisitions which it called
platform deals.
Cisco began experimenting with the new approach in 2003, when it spent $500 million to
acquire Linksys Group Inc., a company which made home-networking equipment allowing
several personal computers to share files and an internet connection.97 Cisco realised that only
a large acquisition could serve as a platform for entering this new market. Moreover, Ciscos
networking gear cost as much as $100,000, while Linksyss consumer products started at less
than $100 and sold through retailers, with which Cisco had little experience. Therefore, to
92
93
94
95
96
97
Chatman, J., OReilly, C., & Chang, V. (2005). Cisco Systems: Developing a human capital strategy,
California Management Review, 47(2): 137-167.
Gulati, R. (2009). "Cisco Business Councils: Unifying a Functional Enterprise with an Internal Governance
System." Harvard Business School Case 409-062.
White, B. & Vara, V. (2008). Cisco changes tack in takeover game. The Wall Street Journal, 17 April,
p. A.1.
ibid.
ibid.
15
03/2010-5669
avoid inadvertently damaging the newly acquired company, Cisco decided to keep in place
the Linksys brand name, manufacturing agreements and its sales team.98
Three years later, Cisco used the same hands-off approach in its 2006 acquisition of set-top
box manufacturer Scientific-Atlanta Inc., with more than 7,500 employees, for an enterprise
value of about $6.9 billion. In this acquisition, it relaxed not only its size preference but also
diverged from the rule of favouring target companies within 20 miles of its headquarters, as
Scientific-Atlanta was based in Lawrenceville, Georgia.
Observers noticed that as Cisco diverged further from its traditional domains, it would start
facing the integration difficulties it had managed to avoid with its previous acquisition
framework. The slow pace of integration of the platform acquisitions suggested that they
were not as easy to integrate. Instead of the typical two months to integrate companies, Cisco
devoted 18 months to two years on less familiar businesses.99 For example, Cisco planned to
take a year and a half learning Scientific-Atlantas business before sitting down with its
executives to discuss detailed sales synergies.
The IronPort Acquisition

Cisco had been the clear leader in the network security market since 2002.100 By 2006,
security was one of Ciscos six advanced technologies, bringing in revenues of $2 billion per
year, accounting for about 40% of the total network security market, estimated at $5 billion
that year. Cisco had 1,500 engineers developing security products such as VPN, firewall,
intrusion-prevention and intrusion-detection systems (IPS/IDS), with several hundred
additional engineers across its various infrastructure product lines integrating security features
into network gear. 101
Although its security products were not considered the best-performing nor the most costefficient, Cisco successfully leveraged its pervasiveness in corporate networks102 to leave its
main competitors, Juniper and Check Point, far behind, and become a leader in worldwide
sales and shipments for the major security product categories.103 Nevertheless, Ciscos
position was far weaker than in its core routing and switching markets, where for many years
it had held a 70% to 80% market share. Moreover, it had significant gaps in its security
product offerings. To complement its capabilities, it had acquired several small companies104
including Okena, Twingo Systems, Riverhead Networks, Perfigo, Protego Networks,
FineGround Networks, NetSift and others. One industry observer commented:
98
99
100
101
102
103
104
White, B. & Vara, V. (2008). Cisco changes tack in takeover game. The Wall Street Journal, 17 April,
p. A.1.
ibid.
http://www.networkworld.com/community/node/43404
Hochmuth, P. (2006). Cisco looks to grab broader security role. Network World. 2 June. Download from:
http://www.networkworld.com/news/2006/020606-cisco-security.html
http://www.baselinemag.com/c/a/Projects-Security/Cisco-Security-That-Old-Familiar-Face/.
Hochmuth, P. (2006). Cisco looks to grab broader security role. Network World. 2 June. Download from:
http://www.networkworld.com/news/2006/020606-cisco-security.html
Rendon, J. (2004). Cisco defends NAC security strategy. SearchNetworking.com, 5 August. Downloaded
from: http://searchnetworking.techtarget.com/news/interview/0,289202,sid7_gci998503,00.html
16
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Cisco has helped lead a trend in the security industry in which large firms
swallow up smaller ones in an effort to broaden their menu of products and
services under the overall network security umbrella. The theory is that customers
would rather buy multiple solutions firewalls, antivirus, VPNs, etc. from a
single vendor that it trusts rather than dealing with the hassle of having a vendor
and a service contract for each one.105
But the one-stop-shop was not the only argument. Whereas most security firms were point
products protecting the network from the outside, Ciscos emphasis was on integrating
security across its portfolio of networking products.106 The processing power of these
products provided strong filtering capabilities, which lent themselves naturally to performing
security tasks. Richard Palmer explained Ciscos Self-Defending Network strategy to provide
customers with integrated end-to-end IT security:
In the past, our networks were like M&Ms: hard on the outside and soft and
chewy on the inside... [Now, we try to] make the networks hardened all the way
through, like jaw-breakers.107
IronPort had appeared on Ciscos radar screen in 2005, when Palmer made a list of dominant
security companies that might become acquisition targets. IronPort, based in San Bruno,
California, which then had about 350 employees, featured on the top of that list.108 IronPort
CEO Scott Weiss had co-founded it in 2000, following a high-powered career in which he had
consulted at McKinsey & Co, served as a group manager at EDS, led a business development
team at Microsoft (after its acquisition of Hotmail) and was managing director and
entrepreneur-in-residence at Idealab.
Launched as a business dedicated exclusively to combating email-borne spam, IronPort had
built its technology around an advanced operating system and reputation monitoring network,
which became the cornerstones of its high-capacity gateway security appliances. Over the
years, it had expanded its powerful anti-spam capabilities to provide anti-spyware, data
encryption and compliance services, as well as content inspection for web traffic. Like Cisco,
which viewed the network as its platform, IronPort saw itself, on a much smaller scale, as a
platform in the security space. It had used external growth to leverage its platform, acquiring
PostX, an encryption service provider, to help seamlessly deliver secure, reliable email
content protection to any mailbox type, regardless of the email software used. In addition, it
entered into a partnership with Webroot to bolster spyware detection by adding the companys
premium software into IronPorts latest web security appliances. 109
IronPorts successful and highly advanced product portfolio relied on two technological
foundations.110 The first was IronPort AsyncOS, a revolutionary operating system delivering
the industrys highest performance and best security features, while saving money on
105 Regan, K. (2004). Cisco To Buy Protego Networks in $65 Million Deal. E-Commerce Times. 20
December. Download from: http://www.ecommercetimes.com/story/39129.html?wlc=1264462865
106 http://www.lightreading.com/document.asp?doc_id=11904
107 ibid.
108 ibid.
109 Gargaro, P. (2007). Cisco and IronPort: A promising horizon on a threatening landscape. The Web Security
Report. July.
110 ibid.
17
03/2010-5669
hardware, rack space, power and IT administration time. The second was SenderBase, the
worlds largest email and web traffic monitoring network, used to differentiate legitimate
senders from spammers and other attackers. With data on more than 25% of the worlds
internet traffic, IronPorts SenderBase Network afforded an unprecedented real-time view into
global security threats. SenderBase was at the heart of IronPort Reputation Filters and the
SenderBase Reputation Score (SBRS), which translated SenderBase data into a single score
indicating the threat level for each incoming message and URL. SenderBase was also utilized
by IronPort Virus Outbreak Filters to protect customers from viruses hours before traditional
anti-virus vendors would publish virus signatures. These foundations were highly
leverageable.
The acquisition of IronPort would pave the way for the fusion of IronPorts proven security
solutions with Ciscos own vast network infrastructure at a time when battle against email and
web-based threats was reported to be intensifying. A deal between the two companies would
combine IronPorts industry-leading content security applications and its SenderBase (the
worlds first and largest email and web traffic monitoring service) with Ciscos broad array of
network infrastructure and security products.111
When Scott Weiss first heard that Cisco might be interested in acquiring his startup, he fired
off a reassuring email to his staff: Said acquiree will not be us.112 Consequently, in early
2006, when Cisco made its first offer of $400 million, Weiss declined,113 fearing he would
lose control over his firm. He also believed that IronPort was worth $1.5 billion given its
leadership and growth prospects. IronPort had built its organization to sustain independent
growth. In the past three years, Weiss had strengthened his sales and marketing team with
high-profile executives such as Jeff Williams, from IntruVert Networks (acquired by Network
Associates Incorporated), and Shrey Bhatia, formerly with Veritas Software114 (later acquired
by Symantec115), complementing IronPorts already strong product development group. As
Weiss put it at the time:
When a sales team as strong as this has a product as strong as the IronPort C60
the results can be astounding The IronPort C60 is designed from the ground
up to meet the needs of the Global 2000. This team will bring it to them.116
These efforts had paid off. Over the next three years, IronPort had opened 12 offices and
accumulated over 500 customers in Asia alone. If Cisco was to integrate IronPort, it would
impact not only IronPorts internal organisation but also its 500 channel partners worldwide,
including 150 partners in North America alone.117 One such partner, Tim Hebert, CEO of
Atrion Networking, based in Warwick, Rhode Island, disclosed that it enjoyed average
product margins of 20% to 22% on IronPorts product line, in addition to recurring license
111 Gargaro, P. (2007). Cisco and IronPort: A promising horizon on a threatening landscape. The Web Security
Report. July.
112 ibid.
113 ibid.
114 http://www.ironport.com/pdf/ironport_2003-07-21b.pdf
115 http://www.ebmm.org/Fusion_Pleasanton/IndianExpress_FusionPleasanton_12Jan07.pdf
116 http://www.ironport.com/pdf/ironport_2003-07-21b.pdf
117 Hagendorf Follett, J. (2007). Cisco Gets The Message With $830M E-Mail Security Acquisition.
ChannelWeb, 4 Jan,
http://www.crn.com/security/196800933;jsessionid=DL2OXYG2RW4KNQE1GHOSKHWATMY32JVN
18
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revenues and high service revenue opportunities.118 While admitting that the Cisco name
could give channel partners a leg-up against IronPort competitors such as Proofpoint, Secure
Computing, and Barracuda Networks,119 he acknowledged that the transition to Ciscos
channel partner might take time:
Youre not going to immediately see the field flooded with 3,000 North American
partners selling IronPort without investing in it.120
Palmer knew he had to be very careful in the promises he would make to IronPorts sales
force. It was critical to keep sales momentum in this fast-growing market and the deal could
not go forward without their support. IronPorts sales people were better paid than their
counterparts at Cisco and were convinced that being integrated into Ciscos sales function
would hurt sales and their individual compensation. A former Cisco executive, who had sold
his firm to Cisco some years earlier, explained the risks involved in handing over the channels
to Cisco:121
The minute you get acquired, the channels go away and its like a nose dive. The
channels go away because either they have a conflict with Cisco or Cisco has a
conflict with them when theres no conflict, then you rank in the channel
hierarchy for Cisco based on how much Cisco gear you move. A lot of our
channels didnt move much Cisco gear. They were great for us, but from the Cisco
perspective they ranked low, and if they rank low then the discounts they get are
pretty bad, and suddenly they have no more interest to go sell. Pretty much
overnight the channels go away and you start this nose dive. And youre sitting on
this huge engine, the Cisco sales force, and you have to ignite it before you hit the
ground. A lot of start-ups then arent able to get that engine going.
As he gathered his thoughts on the deal on the day before Christmas Eve, Richard Palmer
knew that this unique opportunity could be missed. IronPort had the right profile to
successfully go through an IPO. Against a backdrop of so many struggling startups since the
dotcom bubble had burst, IronPort stood out as a success story. It had managed not only to
develop an attractive range of products helping protect email traffic from spam, viruses and
hacking, but had also succeeded in marketing them to an impressive clientele. Although
IronPort was not yet profitable, it was growing fast, with year-on-year sales almost doubling
between 2005 and 2006, and bookings up nearly 70% during the same period.122
118 Hagendorf Follett, J. (2007). Cisco Gets The Message With $830M E-Mail Security Acquisition.
ChannelWeb, 4 Jan,
http://www.crn.com/security/196800933;jsessionid=DL2OXYG2RW4KNQE1GHOSKHWATMY32JVN.
119 ibid.
120 ibid.
121 Interview on July 20, 2009.
122 White, B. & Vara, V. (2008). Cisco changes tack in takeover game. The Wall Street Journal, 17 April, p.
A.1.
19
03/2010-5669
Exhibit 1
Organisational Integration of Acquired Units
20
03/2010-5669
Exhibit 2
Ciscos Acquisitions (1993-2007)
Target Name
Date
(month/year)
Tivella
Greenfield Networks
Orative
Arroyo Video Solutions
Meetinghouse Data
Communications
Metreos
12/2006
11/2006
10/2006
08/2006
07/2006
Total Net
Transaction
Value
($ mm)
Number
of
Employees
Primary industry
31
92
44
10
60
33
44
77
Systems Software
Semiconductors
Application Software
Systems Software
06/2006
28
19
Audium
SyPixx Networks
06/2006
03/2006
20
51
26
27
Intellishield Alert Manager

Assets from Cybertrust
Scientific-Atlanta
11/2005
14
11/2005
6,900
Nemo Systems
Sheer Networks
Kiss Technology A/S
NetSift
M. I. Secure
FineGround Networks
Vihana
Sipura Technology
09/2005
07/2005
07/2005
06/2005
06/2005
05/2005
05/2005
04/2005
13
97
61
30
13
70
30
68
Topspin Communications
04/2005
250
135
Airespace
01/2005
450
175
Protego Networks
12/2004
65
38
BCN Systems
Jahi Networks
12/2004
11/2004
34
16
45
20
Perfigo
Dynamicsoft
NetSolve
10/2004
09/2004
09/2004
74
55
11
104
292
P-Cube
08/2004
200
118
Parc Technologies
Actona Technologies
07/2004
06/2004
9
82
48
Procket Networks
06/2004
89
Riverhead Networks
03/2004
39
Internet Software and

Services
Communications
Equipment
Services
Communications
Equipment
Semiconductors
Consumer Electronics
Systems Software
Systems Software
Systems Software
Semiconductors
Communications
Equipment
Communications
Equipment
Communications
Equipment
Communications
Equipment
Systems Software
Communications
Equipment
Systems Software
Systems Software
IT Consulting and Other
Services
Services
Systems Software
Services
Data Processing and
Outsourced Services
Services
21
7,500
100
65
15
42
27
44
03/2010-5669
Exhibit 2 (contd)
Target Name
Twingo Systems
Latitude Communications
Linksys Group
03/2004
12/2003
03/2003
Total Net
Transaction
Value
($ mm)
5
80
500
SignalWorks
Okena
Psionic Software
Andiamo Systems
03/2003
01/2003
10/2002
08/2002
14
154
12
750
52
8
270
AYR Networks
Hammerhead Networks
Hammerhead Networks
Allegro Systems
AuroraNetics
07/2002
05/2002
05/2002
07/2001
07/2001
113
173
173.00
117.68
152.59
30
85
85
39
52
ExiO Communications
12/2000
155.00
Radiata
11/2000
295.00
Active Voice Corporation
11/2000
143.40
CAIS Software Solutions
10/2000
146.80
65
Vovida Networks
IPCell Technologies
PixStream
09/2000
09/2000
08/2000
8,704.88
204.88
369.00
65
110
156
IPmobile
NuSpeed Internet Systems
08/2000
07/2000
345.53
470.29
81
56
Komodo Technology
07/2000
159.77
25
Liberate Technologies
Netiverse
07/2000
07/2000
100.00
210.00
414
34
HyNEX
06/2000
7,471.75
Qeyton Systems AB
05/2000
800.00
52
ArrowPoint Communications
05/2000
5,812.59
149
Seagull Semiconductor
PentaCom
04/2000
04/2000
19.00
118.00
48
SightPath
03/2000
800.00
76
InfoGear Technology Corp.
03/2000
293.55
74
JetCell
03/2000
210.76
46
Date
(month/year)
22
Number of
Employees
183
308
53
Primary industry
Systems Software
Communications
Equipment
Systems Software
Communications
Equipment
Systems Software
Communications
Equipment
Communications
Equipment
Communications
Equipment
Communications
Equipment
Construction and
Engineering
Communications
Equipment
Communications
Equipment
Communications
Equipment
Services
Communications
Equipment
Communications
Equipment
Communications
Equipment
Semiconductors
Communications
Equipment
Communications
Equipment
Services
Telecommunications
Services
03/2010-5669
Exhibit 2 (contd)
Target Name
Atlantech Technologies
Growth Networks
03/2000
02/2000
Total Net
Transaction
Value
($ mm)
180.00
431.08
Altiga Networks
01/2000
958.39
76
Compatible Systems Corp.
01/2000
232.00
68
Pirelli Optical Systems

Internet Engineering Group
Worldwide Data Systems
12/1999
12/1999
12/1999
2,760.63
25.00
25.50
701
13
V-Bits
11/1999
128.00
30
Aironet Wireless
Communications
Tasmania Network Systems
11/1999
1,549.50
119
10/1999
25.00
16
WebLine Communications
Corp.
Cocom A/S
09/1999
302.43
120
09/1999
65.60
66
Cerent Corporation
08/1999
7,259.40
280
Monterey Networks
08/1999
515.18
100
MaxComm Technologies
Calista
08/1999
08/1999
143.00
55.00
35
20
StratumOne Communications
TransMedia Communications
06/1999
06/1999
432.72
936.11
78
66
Amteva Technologies
GeoTel Communications
Sentient Networks
04/1999
04/1999
04/1999
170.00
2,220.22
256.17
144
310
102
Fibex Systems
04/1999
320.00
100
PipeLinks
12/1998
126.00
73
Selsius Systems
10/1998
145.00
51
Clarity Wireless Corporation
09/1998
157.00
39
American Internet
Corporation
Summa Four
08/1998
53.32
50
07/1998
152.59
210
CLASS Data Systems
05/1998
50.00
34
Precept Software
03/1998
92.22
50
Date
(month/year)
23
Number of
Employees
110
53
Primary industry
Communications
Equipment
Services
Communications
Equipment
Alternative Carriers
Services
Communications
Equipment
Computer Hardware
Services
Services
Communications
Equipment
Communications
Equipment
Communications
Equipment
Alternative Carriers
Communications
Equipment
Semiconductors
Communications
Equipment
Systems Software
Communications
Equipment
Communications
Equipment
Communications
Equipment
Communications
Equipment
Communications
Equipment
Communications
Equipment
Services
03/2010-5669
Exhibit 2 (contd)
Target Name
Date
(month/year)
Total Net
Transaction
Value
($ mm)
256.60
Number of
Employees
NetSpeed
03/1998
WheelGroup Corporation
LightSpeed International
Dagaz (Integrated Network
Corporation)
CAIS Internet
02/1998
12/1997
07/1997
121.49
192.00
75
70
30
06/1997
156.00
40
Global Internet Software

Group
Skystone Systems Corp
NetSys Technologies
06/1997
06/1997
10/1996
89.10
79.00
40
50
Granite Systems
Nashoba Networks
09/1996
08/1996
100.00
50
40
Telebit Corporation
07/1996
200.00
288
StrataCom
04/1996
4,997.03
1,000
TGV Software
Network Translation
01/1996
10/1995
224.54
130
10
Grand Junction Networks
09/1995
85
Internet Junction
09/1995
10
Combinet
08/1995
LightStream Corporation
12/1994
Kalpana
10/1994
Newport Systems Solutions
07/1994
Crescendo Communications
09/1993
140
20
141.75
100
60
899.25
150
55
94.50
24
60
Primary industry
Communications
Equipment
Systems Software
DSL Access Multiplexers
Services
Firewall Solutions
Semiconductors
Office Services and
Supplies
Gigabit Ethernet Solutions
Communications
Equipment
Communications
Equipment
Communications
Equipment
Systems Software
Internet firewall hardware
and software
Communications
Equipment
Internet/Extranet
Enterprise Solutions
Data Processing and
Outsourced Services
Campus ATM Switching
Solutions
Communications
Equipment
Services
Data Processing and
Outsourced Services
03/2010-5669
Exhibit 3
Cisco Financials in the 1990s
For the Year
Ending
Total
Revenue
Jul-291990
Jul-281991
Jul-261992
Jul-251993
Jul-311994
Jul-301995
Jul-281996
Jul-261997
Jul-251998
Jul-311999
69.8
183.2
339.6
649.0
1,334.4
2,232.7
4,096.0
6,452.0
8,489.0
12,173.0
Growth YoY
NA
162.5%
85.4%
91.1%
105.6%
67.3%
83.5%
57.5%
31.6%
43.4%
Gross Profit
45.8
120.7
228.4
438.5
883.8
1,489.8
2,686.1
4,209.0
5,565.0
7,914.0
Margin %
65.7%
65.9%
67.2%
67.6%
66.2%
66.7%
65.6%
65.2%
65.6%
65.0%
EBITDA
22.4
69.2
136.1
277.2
536.5
868.7
1,533.4
2,351.0
2,993.0
3,833.0
Margin %
32.1%
37.8%
40.1%
42.7%
40.2%
38.9%
37.4%
36.4%
35.3%
31.5%
21.4
66.2
129.4
263.6
500.2
793.7
1,400.8
2,137.0
2,664.0
3,344.0
30.7%
36.1%
38.1%
40.6%
37.5%
35.6%
34.2%
33.1%
31.4%
27.5%
13.9
43.2
84.4
172.0
323.0
456.5
913.3
1,051.0
1,331.0
2,023.0
19.9%
23.6%
24.8%
26.5%
24.2%
20.4%
22.3%
16.3%
15.7%
16.6%
13.9
43.2
84.4
172.0
323.0
456.5
913.3
1,051.0
1,331.0
2,023.0
19.9%
23.6%
24.8%
26.5%
24.2%
20.4%
22.3%
16.3%
15.7%
16.6%
0.003
0.01
0.018
0.037
0.06
0.08
0.153
0.168
0.2
0.286
NA
175.6%
92.5%
100.3%
62.5%
33%
91.8%
9.6%.
19%
43.3%
EBIT
Margin %
Earnings
from Cont.
Ops.
Margin %
Net Income
Margin %
Diluted EPS
Excl. Extra
Items
Growth Over
Prior Year
25
03/2010-5669
Exhibit 4
Cisco Financials after 2000
For the Year Ending
Jul-29-2000A
Jul-28-2001
Jul-27-2002
Jul-26-2003
Jul-31-2004
Jul-30-2005
Jul-29-2006
18,928.0
22,293.0
18,915.0
18,878.0
22,045.0
24,801.0
28,484.0
55.5%
17.8%
(15.2%)
(0.2%)
16.8%
12.5%
14.9%
12,182.0
13,321.0
12,017.0
13,233.0
15,126.0
16,671.0
18,747.0
Margin %
64.4%
59.8%
63.5%
70.1%
68.6%
67.2%
65.8%
EBITDA
5,471.0
4,506.0
5,193.0
6,349.0
7,494.0
8,462.0
8,380.0
Margin %
28.9%
20.2%
27.5%
33.6%
34.0%
34.1%
29.4%
4,608.0
2,270.0
3,236.0
4,886.0
6,295.0
7,442.0
7,156.0
24.3%
10.2%
17.1%
25.9%
28.6%
30.0%
25.1%
2,668.0
(1,014.0)
1,893.0
3,578.0
4,968.0
5,741.0
5,580.0
14.1%
(4.5%)
10.0%
19.0%
22.5%
23.1%
19.6%
2,668.0
(1,014.0)
1,893.0
3,578.0
4,968.0
5,741.0
5,580.0
14.1%
(4.5%)
10.0%
19.0%
22.5%
23.1%
19.6%
0.359
(0.141)
0.254
0.495
0.704
0.868
0.89
25.2%
NM
NM
94.9%
42.1%
23.3%
2.5%
Total Revenue
Growth YoY
Gross Profit
EBIT
Margin %
Earnings from Cont.
Ops.
Margin %
Net Income
Margin %
Diluted EPS Excl.
Extra Items
Growth Over Prior Year
26
03/2010-5669
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Cisco Systems:

New Millennium New Acquisition

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Ciscos Early Years (1984-1993)

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Ciscos Corporate Strategy (1993-1999)

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Cisco's Growth Through Acquisitions (1993-1999)

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Interview on March 2, 2009.

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Ciscos Strategy in the New Millennium

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Chambers confessed that Cisco should

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The IronPort Acquisition

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Intellishield Alert Manager

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Active Voice Corporation

CAIS Software Solutions

InfoGear Technology Corp.

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Compatible Systems Corp.

Pirelli Optical Systems

Clarity Wireless Corporation

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Global Internet Software

Grand Junction Networks

Newport Systems Solutions

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