Company Overview

In the early 1980s, Leonard Bosack developed a technology to link his computer lab’s network to his wife Sandra Lerner’s network at her business school. The couple saw a potential market for this kind of networking device, and took a risk: They mortgaged their house, bought a mainframe, put it in their garage, and convinced friends and relatives to work for deferred pay. They sold their first router in 1986, and Cisco hasn’t looked back since.

The company’s success intensified as the decade drew to a close—sales leapt from $1.5 million in 1987 to $28 million in 1989. Cisco went public in 1990, though Bosack and Lerner left later the same year, selling off their stocks for about $200 million. In 1994, revenues surpassed $1 billion.

Cisco has dominated the network infrastructure market for years. In addition to routers and switches, which generate the bulk of Cisco’s revenue, the company sells network security, Internet telephony, wireless networking, optical networking, and storage area networking services and solutions, among a number of other products. Its philosophy of growth involves major expansion through varied acquisitions, which is also how it tends to enter new markets.

Cisco targets three groups of customers for its networking services: large corporations (and other large organizations) with complex computer systems and networking needs; service providers such as ISP companies, telecommunications carriers, cable companies, and wireless communications companies. It also serves smaller businesses and personal residences that need data networks and Internet access. Cisco’s abundant competition comes from the likes of 3Com, Extreme Networks, Juniper Networks, and Nortel Networks—to name a few.

In the 1990s, Cisco grew at an astounding pace, acquiring company after company, right up through the peak of the dotcom boom. The decade’s growth was capped with the addition of fiber-optic network equipment maker Cerent in 1999—the largest purchase in Cisco’s history—for $7 billion. In 2000, Cisco continued its buying spree, acquiring more than 20 companies in a variety of industries. The same year, it was the world’s most valuable company.

Cisco formed alliances with companise like Microsoft, Motorola, and KPMG, but a sudden drop in orders and a large investment in Internet protocol–based telecommunications equipment caused the company to write off billions of dollars in inventory in 2001. In response, the company cut staff, and CEO John Chambers restructured the company to better operate around its core technologies, rather than customer segments. He also voluntarily cut his salary to $1.

When online and technology businesses began to rebound early in the new millennium, Cisco added a number of acquisitions including networking switch maker Andiamo Systems in 2002; home networking specialist Linksys in 2003; conferencing systems provider Latitude Communications and router developer Procket Networks in 2004. Also in 2004, Cisco released a new router aimed to help the company compete with higher-end producers. The CRS-1 was the result of four years of research and development and more than $500 million in investment.

The acquisition of cable set-top box maker Scientific-Atlanta in 2006 for $6.9 billion was the second-largest purchase in company history. The company showed no signs of slowing in 2007, as it continued to grow its software developer investments. In late 2007, Cisco announced plans for a $16 billion expansion plan for China, including investments in manufacturing, education programs, and venture capital.