Cisco gets defensive on cost factor

Ben Klayman

CHICAGO: Cisco Systems Inc., the world's largest maker of equipment that directs Internet traffic vowed not to surrender the inexpensive end of the communications equipment market to such low-cost rivals as Dell Computer Corp. But Chief Executive John Chambers stopped short of saying that Cisco might be willing to cut prices.

Previously, he said that price is not among the top three factors when customers are choosing their suppliers, and Cisco's strategy emphasizes more features and services for the money. "You will see the Dells of the world and others attempt to come at us from below," Chambers told investors at a Morgan Stanley conference in Scottsdale, Arizona. "We won't just play defense, we will play offense as well" he added.

As part of that effort, Chambers said Cisco will spend $150 million this year on a global advertising campaign to raise the company's brand awareness. The ad campaign, which the San Jose, California-based company said will be launched in two to three months in North America, will include broadcast, print and online ads, and event marketing.

He said the next generation of competition for Cisco also will come from such companies as Huawei Technologies Inc., China's largest telecommunications maker, and other Asian players. Dell entered the low-end switch market in late 2001 and has already driven down prices with its low-cost model. Switches are used to direct data traffic on a network. Huawei intends to build a presence in the United States.

In response to a question about how Cisco will deal with companies that violate Cisco's patents, a charge some analysts have made of Huawei, Chambers said he would rely on the Chinese government and the World Trade Organization to protect Cisco's rights.

Chambers, who did not update the company's financial forecast for its fiscal second quarter, reiterated that consolidation in the communications equipment sector is inevitable. He said Cisco will continue to acquire companies, mostly small private ones, but only after they have downsized their businesses themselves.

Cisco will continue to concentrate on partnerships, much like the latest one it announced earlier Tuesday with IBM Corp. to sell its storage networking switches, Chambers said. He added he would like to partner with one of the large telecom equipment makers, such as Lucent Technologies Inc. or Canada's Nortel Networks Corp., but he was not interested in acquiring any of them.

© Reuters