Home & Office

Re:Viewing 2001: Who'd be an equipment vendor?

"Cisco dropping a clanger? Hard to believe."
Written by Heather McLean, Contributor

"Cisco dropping a clanger? Hard to believe."

Communications equipment suppliers have suffered perhaps more than anyone in 2001. Can things get much worse? Heather McLean takes a look at two heavyweights - Cisco and Nortel. Imagine your boss sent out a company-wide email saying: "Come to work in shorts this summer - we're saving on the air-con bill." (http://www.silicon.com/a46132 ) You might think finances are a bit tight. But even if you work at one of the tech sector's superstars, one of the most successful companies ever? Well, in 2001 this did happen, and that email - minus the bit about saving money (twas also down to energy saving measures in the state of California) - was sent by John Chambers, CEO of networking giant Cisco. Sporting a pair of Bermuda shorts, Chambers casually told employees offices in sunny Silicon Valley would remain sweaty throughout the hot season. Not behaviour we might associate with the company that in 2000, for a brief time, became bigger by market cap than either Microsoft or GE. But then it's been that type of year. It's been a tough year for the telco sector and so for the equipment companies who supply them. Let's look at two of the biggies - the aforementioned Cisco and Nortel. It's been a funny old year for the networking industry. Instead of its annual orgy of buying, acquiring and piling on the pounds it's been a case of strip and sell for fat cat Cisco and co-networking queen, Nortel. Of the two, Nortel has taken the bigger blow and has dropped staff like hotcakes this year, cutting costs to maintain a viable future. The Canadian company has chopped a massive 50,000 employees to reduce its headcount to 45,000 (http://www.silicon.com/a447950 ), raising concerns there may be no one left to pull it out of the slump when things start to perk up. Nortel's sales plummeted faster and steeper than Cisco's as its customer base - a reminder of its origins in telecoms equipment supply - is more heavily reliant on telcos and ISPs, companies that have slowed IT spend to a standstill. Cisco's data networking background gives it more corporate customers. They may have also cut IT budgets and slowed spending, but not as much. Cisco has also made huge employee cuts but not enough to rival the limping Nortel, with a relatively slim total of 8,500 for the year (http://www.silicon.com/a43866 ). This leaves the organisation with 37,500 staff members to carry it through to 2002. More unusual is some of the most un-Cisco-like behaviour ever seen - it stopped buying and even sold one of its purchases. Cisco's yearly buying sprees began when it took the lead on its two main rivals in the 1990s, Wellfleet and Synoptics, companies that merged to become Bay Networks in 1994. Bay was bought by Cisco rival Nortel in July 1998 (http://www.silicon.com/a20902 ) in the biggest merger of telecoms and data networking companies in the history of the universe. (That we know of, at least.) Cisco had purchased around 20 companies each year from 1993 - until now. Only two companies have been swallowed by the giant in 2001 leaving no doubt about the seriousness of the market downturn in most spectators' minds. A sign that things haven't just slowed but actually gone wrong in some cases was the sale of Monterey Networks (http://www.silicon.com/a43762 ). Cisco dropping a clanger? Hard to believe. Weak sales of the 15900 Wavelength router gained by Cisco for $450m in August 1999 failed to increase telecoms sales so it was unceremoniously dumped in April 2001. To counter the misery, Cisco's Chambers took a rather large pay cut for the year to buoy the company - symbolically, as much as anything else - taking home around eight cents each month after tax once he'd dropped his $1.3m salary plus bonuses (http://www.silicon.com/a44039 ). Don't feel too bad though - Chambers will manage to keep the family kitchen stocked by using some of the $150m he made in 2000 by exercising his stock options. But if this has been the year for the top two equipment providers, imagine the state of numerous other suppliers out there. The majors have suffered - players like Alcatel, Ericsson, Lucent and Motorola - but so too have many of the smaller vendors, resellers and integrators. A range of 'experts' contend the second quarter of 2002 will mark the beginning of happier days, but both the organisations discussed in this column surely can't expect telecommunications companies, ISPs and enterprises to start spending with the enthusiasm of old. Just getting rid of the losses would be a start for most people in the sector.
Editorial standards