Financially, it wasn’t a great year for Cisco Systems. Net sales for the Silicon Valley giant fell by 8.7% in fiscal 2009, to $36.1 billion, and the stock fell below $14 in March before climbing back to nearly $25 in October. But strategically, it may have been a transformative year. Underscoring his desire to leverage Cisco’s dominance in networking and expand into 30 or more “market adjacencies,” CEO John Chambers cranked up the company’s famous acquisition machine — a machine fueled by a $35 billion cash hoard. In March, for example, Cisco bought Pure Digital, maker of the pocket-sized Flip video camera, for $590 million. Six months later the company bid $3 billion for Tandberg, a Norwegian videoconferencing company. Two weeks after that, Cisco offered nearly as much to buy Starent Networks, which makes products for sending data over wireless networks.
Ensuring that these deals make financial as well as strategic sense is CFO Frank Calderoni. A 21-year veteran of IBM and former CFO of SanDisk and QLogic, Calderoni joined Cisco in 2004 and became its finance chief in February 2008. The 52-year-old Calderoni views his role as being “a catalyst of business transformation.” Recently he discussed how Cisco intends to transform itself in the coming years.
Cisco wants to become a lot more than a mere network plumbing company. What’s the vision?
We believe the network as a platform will enable us to branch out into adjacent markets. Over the past year we realigned our portfolio to invest in the top growth priorities for the company, with additional focus on three areas: video, the data center, and collaboration.
Where will this leave Cisco in, say, five years?
As a very strong, profitable company in the network technology industry. A company that has been able to leverage the network to expand into multiple adjacent markets and across our customer segments from the consumer to the enterprise, as well as service providers.
Won’t a stronger push into data-center products put you in more-direct competition with IBM and Dell, both of which are Cisco partners?
We have partnered for a number of years with those companies, and we continue to feel that there are partnership opportunities moving forward. No matter how you look at it, the technology industry has situations where you partner and others where you compete. It’s just part of the industry.
Despite Cisco’s dominance in networking, its sales fell by nearly 9% this year. What steps have you taken in response to the downturn?
We drove savings in our annual run rate in excess of $1.5 billion through fairly aggressive expense-management actions. We also launched about 15 business-efficiency initiatives to drive productivity across our business — not only to manage through tough times, but also to give us the ability to scale over the long run. And again, we realigned our portfolio to make sure that we’re focused on growth opportunities for the long term.
What kind of annual growth do you envision once the economy turns around?
Our long-term business model anticipates annual revenue growth of 12% to 17%.