Speaker 1: Get in touch with technology with tech Stuff from how
Speaker 1: stuff works dot com. Hey there, and welcome to tech Stuff.
Speaker 1: I am your host, Jonathan Strickland. I'm an executive producer
Speaker 1: at how stuff Works and I love all things tech.
Speaker 1: And in my last episode, I covered the founding of
Speaker 1: Cisco Systems, a company associated primarily with routers and switches
Speaker 1: and other computer network hardware. Today, I'm going to look
Speaker 1: more at where the company went after the co founders
Speaker 1: left the company, and also talk a bit about some
Speaker 1: of the technologies that the company got involved in. Now,
Speaker 1: the early years of Cisco focused on just a few products,
Speaker 1: from network boards that could allow computers to interface with
Speaker 1: larger networks to the routers that could actually facilitate communication
Speaker 1: between networks. In the mid to late nineteen eighties, this
Speaker 1: was cutting edge technology. Computer networks were just beginning to
Speaker 1: expand beyond tech companies and universities and start to enter
Speaker 1: into other industries, and demand was growing around the world,
Speaker 1: not just in the United States. By when the co founders,
Speaker 1: Lynn Bozak and Sandy Lerner, then husband and wife, left Cisco,
Speaker 1: the company was generating an annual revenue of sixty nine
Speaker 1: million dollars and had two d fifty one employees and
Speaker 1: had obviously grown quite a bit since its launch as
Speaker 1: a business out of the founders living room, and obviously
Speaker 1: it was no longer operating out of their living room.
Speaker 1: They had an office in Menlo Park at the time.
Speaker 1: The company had also gone public with stocks trading on
Speaker 1: the Nasdaq Stock Exchange, and in ninetee Cisco Systems. Under
Speaker 1: the guidance of John Mortgage, the new president and CEO,
Speaker 1: who had been put in place by the UH investment
Speaker 1: firm Sequoia Capital. He had been there since nineteen he
Speaker 1: opened up their first international office in the UK. The
Speaker 1: company also had its first stock split in just one
Speaker 1: year after it got listed on the stock exchange. So
Speaker 1: here's a quick refresher. What the heck is a stock split?
Speaker 1: What does that mean? So a company issues a certain
Speaker 1: number of shares and this represents a percentage of ownership
Speaker 1: in the company. Right, If you buy shares in the company,
Speaker 1: you own a part of that company. The number of
Speaker 1: shares determines how much of that company you own. So
Speaker 1: if a company puts out a whole lot of shares
Speaker 1: and you buy only one, you have a very tiny
Speaker 1: percentage of ownership. In that company, the shares are worth
Speaker 1: a certain amount each. Right, that's what we see when
Speaker 1: we say the stock is twenty dollars. That tells you
Speaker 1: how much it a single share of stock in that
Speaker 1: company costs. UH. That amount is determined by lots of
Speaker 1: different factors, especially when you are first launching a company,
Speaker 1: Like how do you determine how much you're going to
Speaker 1: charge for a share of stock in your company if
Speaker 1: you have not yet launched an UH initial public offering? Well,
Speaker 1: get lots of different factors that figured that out, including
Speaker 1: underwriters who judge what the value of the company should be.
Speaker 1: For simplicity's sake, let's take a very easy example, one
Speaker 1: that would never really happen, but just to be able
Speaker 1: to talk about this. So, let's say I am launching
Speaker 1: a company, and I've determined that my company is worth
Speaker 1: about a thousand dollars, you know, princely some I decide
Speaker 1: I'm going to go public with this very prestigious company,
Speaker 1: and my underwriters decide that the one hundred shares I
Speaker 1: plan to create will cost ten dollars each. They agree
Speaker 1: my company is worth one thousand dollars. So UH, one
Speaker 1: of my company will cost you ten bucks. Right, because
Speaker 1: I have a hundred shares ten dollars of share. That
Speaker 1: means that you know, that's all you're gonna get is
Speaker 1: just those hundred shares um and that that's the whole
Speaker 1: value of the company. So I keep fifty one of
Speaker 1: those shares because I'm no dummy. I want to have
Speaker 1: controlling interest in my own company. And the other forty
Speaker 1: nine shares hit the market at ten dollars each. Then
Speaker 1: the market decides whether or not those shares are actually
Speaker 1: worth the ten dollars, and people either buy them or
Speaker 1: they don't. Now, let's flash forward a year. Let's say
Speaker 1: that the stock price has gone way up. Now it's
Speaker 1: a hundred dollars per shared. It started out ten dollars
Speaker 1: per share on the I p O. A year later,
Speaker 1: they're valued at a hundred dollars per share. There's still
Speaker 1: a hundred shares out there, but that means my one
Speaker 1: thousand dollar company is now worth ten thousand dollars. Right.
Speaker 1: I take that same number of shares that exist, that's
Speaker 1: one hundred times the price one hundred dollars. This gives
Speaker 1: me the market capitalization of the company. Now, it's awesome
Speaker 1: that my company has increased in value like this, But
Speaker 1: I would kind of like to see more trading happen
Speaker 1: in the market, more liquidity, right, I want to see
Speaker 1: people actually buying and selling these shares more frequently. And
Speaker 1: at a hundred dollars per share, all investors might feel
Speaker 1: pushed out. They feel like that's too expensive to buy
Speaker 1: any shares really worthwhile. So my board decides that we're
Speaker 1: going to do a stock split. We're gonna do a
Speaker 1: two for one stock split. That means for every outstanding
Speaker 1: share of stock, I will create another share and issue
Speaker 1: it to the people who are holding those shares. So
Speaker 1: if you are currently holding two shares in my company,
Speaker 1: you would now hold four shares in my company. However,
Speaker 1: I can't just magically double the value of my company, right.
Speaker 1: I can't sit there and say, well, I had a
Speaker 1: hundred shares at a hundred dollars, now I've got two
Speaker 1: hundred shares at a hundred dollars. That doesn't work that way.
Speaker 1: So all shareholders would see the number of shares double,
Speaker 1: but the value per share would be cut in half.
Speaker 1: So instead of having two shares worth a hundred dollars each,
Speaker 1: you would now have four shares worth fifty dollars each,
Speaker 1: but the lower cost per share might mean greater liquidity
Speaker 1: and trading. That might encourage smaller investors to get involved,
Speaker 1: and that can sometimes help a company grow even more.
Speaker 1: Companies like Cisco have had numerous stock splits, and I'll
Speaker 1: talk more about the result of that at the end
Speaker 1: of this episode. I just wanted to mention that it
Speaker 1: was impressive that a company would hold a split only
Speaker 1: a year after getting listed on the stock exchange. When
Speaker 1: Cisco Systems first went public, it had the market capitalization
Speaker 1: of two four million dollars. So, in other words, you
Speaker 1: took all the shares of Cisco that existed, you multiplied
Speaker 1: it by the price per share, you get up two
Speaker 1: four million dollars. That's how much the market cap is
Speaker 1: for Cisco when it launches in Just a year later,
Speaker 1: that market cap was already one billion dollars. In ninety two,
Speaker 1: Cisco was awarded its first patent, which was originally filed
Speaker 1: back in Because patent applications can take a while, the
Speaker 1: patent office takes a while to review a patent and
Speaker 1: then uh issue a patent. It was US Patent number
Speaker 1: five million, eighty eight thousand, thirty two That patent was
Speaker 1: for technology called the Interior Gateway Routing Protocol or i
Speaker 1: g RP. That was a set of rules that routers
Speaker 1: would follow for efficient communications within a computer network, peaking
Speaker 1: ahead for a moment. In the summer of ten, Cisco
Speaker 1: would celebrate getting its ten thousand US patent. But to
Speaker 1: be clear, Cisco also grew quite a bit through acquisitions.
Speaker 1: Uh Primarily, Cisco grew by acquiring other companies, so I
Speaker 1: imagine many of those patents were part of acquisitions and
Speaker 1: not just patents that were filed by Cisco R and D.
Speaker 1: Cisco also opened offices in Canada and Japan in n
Speaker 1: and hit revenues of three one million dollars and grew
Speaker 1: to eight hundred seventy five employees. Now, from this point forward,
Speaker 1: I'm only going to mention revenues and employee counts when
Speaker 1: it's particularly notable, since a lot of Cisco's history is
Speaker 1: all about it got bigger that year, and that gets
Speaker 1: really old, really fast, So I'm not going to do
Speaker 1: that for every single year. In ninety three, Cisco Systems
Speaker 1: made its first acquisition. It was a company called Crescendo Communications,
Speaker 1: and Crescendo was working on network switching technologies, particularly for
Speaker 1: local area networks. The acquisition cost nearly nine million dollars,
Speaker 1: and again, if I were to list every single company
Speaker 1: Cisco Systems purchased from that time up to present day,
Speaker 1: it would probably take about twenty minutes to do. Most
Speaker 1: of them were companies that focused on technologies relating to networks,
Speaker 1: so within Cisco's wheelhouse, they were largely companies that made
Speaker 1: routers or switches, or modems or firewalls. Others, however, were
Speaker 1: in related fields like computer security. There was even a
Speaker 1: couple of companies that were related to Internet television, back
Speaker 1: when everyone was convinced that was right around the corner,
Speaker 1: when in reality, it would take you know, a decade
Speaker 1: or two after that acquisition for any sort of Internet
Speaker 1: TV to kind of take off, and even then it
Speaker 1: was a totally different UH implementation than what people had
Speaker 1: imagined back in the nineties. Cisco would also acquire companies
Speaker 1: in the mobile space, also in surveillance, in voice over
Speaker 1: Internet protocol, in digital cable, and more even in consumer electronics.
Speaker 1: More recently, the company has invested heavily in cloud computing infrastructure.
Speaker 1: So in all, Cisco has spent around seventy billion dollars
Speaker 1: in acquisitions, and most of the products Cisco offers comes
Speaker 1: out of those acquisitions, So you could say a lot
Speaker 1: of Cisco's growth came from buying out other companies and
Speaker 1: adding to their own offerings. That way, John Mortgage and
Speaker 1: his successor, John Chambers both used acquisitions as a means
Speaker 1: for growth. According to a two thousand two Business Week article,
Speaker 1: acquisitions accounted for about fifty of all Cisco's businesses. Cisco's
Speaker 1: uh moves also meant that it maintained a dominant position
Speaker 1: in business to business enterprise, and it focused on network technology.
Speaker 1: It was the dominant player in that space. If you
Speaker 1: planned to build out a computer network, chances are you
Speaker 1: were relying at least in part on technology from Cisco.
Speaker 1: This included Internet service providers, so we started seeing more
Speaker 1: and more Internet service getting rolled out to the United
Speaker 1: States population. Those network infrastructure pieces had to come from somewhere.
Speaker 1: Cisco provided a lot of the routers and switches that
Speaker 1: would be used by Internet service providers in their various networks,
Speaker 1: so it was a lucrative source of revenue for the company. Now,
Speaker 1: to be clear, the acquisitions were likely necessary to some extent.
Speaker 1: Cisco had built much of its business early on on
Speaker 1: multi protocol routers. If you listen to my last episode,
Speaker 1: you know what I mean by that. Those are the
Speaker 1: routers that can communicate between different networks that are operating
Speaker 1: on incompatible communications protocols. But by the nineties a lot
Speaker 1: of that was changing. Most networks were starting to rely
Speaker 1: upon Internet Protocol as the standard in communications, so you
Speaker 1: weren't seeing as much proprietary approaches. Everyone was kind of
Speaker 1: leaning towards Internet Protocol because that was clearly going to
Speaker 1: become a dominant means of communication through computer systems, and
Speaker 1: that made multi protocol routers less important because really only
Speaker 1: legacy systems were dependent upon them. Newer systems were adopting
Speaker 1: Internet Protocol, so you didn't need something that was multi protocol.
Speaker 1: It's like you don't need a translator if everybody in
Speaker 1: the room speaks the same common language. So without diversifying,
Speaker 1: Cisco could have been in danger of becoming obsolete. So
Speaker 1: these acquisitions were actually not a bad thing, But there
Speaker 1: is this sort of view among certain people that a
Speaker 1: company growing by acquiring other companies is kind of sort
Speaker 1: of cheating. It's like the pay to win philosophy and games. Uh,
Speaker 1: according to some people. Sometimes I feel that way. I'm
Speaker 1: not gonna lie. Sometimes I look at a company that
Speaker 1: makes most of its growth through acquisitions and I think, really,
Speaker 1: but it's a smart business move. It makes sense, and
Speaker 1: for Cisco, it paid off in huge dividends for at
Speaker 1: least the near term. Now back to the history of
Speaker 1: the company. While he gobbled up other companies, Cisco also
Speaker 1: opened up more operations around the world like Hong Kong, Mexico,
Speaker 1: and Belgium, and it would continue to open up offices
Speaker 1: all across the world. By the company hit revenues of
Speaker 1: more than a billion dollars for the first time in
Speaker 1: its history, and they also moved offices from Menlo Park
Speaker 1: to San Jose, California, And a year later the company
Speaker 1: posted a revenue of two point to three billion. So
Speaker 1: they go from a billion to two point to three billion.
Speaker 1: They double their revenue in a year, and it was
Speaker 1: like the company had a license to print money. But
Speaker 1: remember this is also a time when people in general
Speaker 1: were first becoming aware of the Internet as a thing.
Speaker 1: Early nineties. That's when your average person starts to hear
Speaker 1: about internet. Before then, you pretty much had to be
Speaker 1: a college student it or you had to work in
Speaker 1: the field to know what the heck the Internet was.
Speaker 1: Most people before the early nineties had no inkling, and
Speaker 1: it was around this time where people were saying like,
Speaker 1: what does the AT symbol in an email mean? What
Speaker 1: does this Worldwide Web? What does this Information super Highway?
Speaker 1: This was a boom time for network technology. Was also
Speaker 1: when John Chambers would become the new CEO of Cisco
Speaker 1: and John Mortgridge would transition to the role of Chairman
Speaker 1: of the board. I'll talk more about Chambers in just
Speaker 1: a moment, but first let's take a quick break to
Speaker 1: thank our sponsor. John Chambers had earned a Master's of
Speaker 1: Business administration from Indiana University. He had worked for IBM
Speaker 1: in their sales department in the late seventies and early
Speaker 1: nineteen eighties, and then went on to work for Wang Laboratories,
Speaker 1: makers of the Whang compute or Wong if you want
Speaker 1: to use the correct pronunciation, I would say this was
Speaker 1: in the late eighties. This was a computer company that
Speaker 1: one time was extremely successful. A lot of people haven't
Speaker 1: really heard about Wong or Wang computers these days because
Speaker 1: they were again sort of a business to business company.
Speaker 1: But by the time Chambers left the company in nineteen ninety,
Speaker 1: Wong was already on a downward spiral and it would
Speaker 1: eventually declare bankruptcy. It would emerge from bankruptcy, it would
Speaker 1: then get acquired, and ultimately it would end up dissolving
Speaker 1: after a couple more acquisitions. Maybe someday I'll do a
Speaker 1: full episode to talk about the history of that company. Anyway,
Speaker 1: by that time, John Chambers was already part of Cisco.
Speaker 1: He had joined that team officially in nine and he
Speaker 1: would serve as the Cisco CEO for two decades. He
Speaker 1: would stay on a CEO until July two thousand, fifteen,
Speaker 1: and a lot happened in those two decades. So Chamber
Speaker 1: serves as the new CEO of Cisco and its business
Speaker 1: as usual, meaning the company is continuing to grow and
Speaker 1: acquire other companies. This was a time when people began
Speaker 1: to get incredibly excited about the potential of the Internet
Speaker 1: the mid to late nineties. Startups were beginning to bloom
Speaker 1: in the mid nineties, but that would really build to
Speaker 1: a fever pitch by the end of the nineties. It
Speaker 1: got crazy. The Information super Highway was being hailed as
Speaker 1: the next frontier. It was where people were going to
Speaker 1: make their fortune. It was a land grab of massive scale.
Speaker 1: It was where we were all going to live, and
Speaker 1: we were going to have experiences in virtual environments that
Speaker 1: would let us work and shop and play and experienced
Speaker 1: life in a way we just could not imagine before
Speaker 1: the Internet, Or at least that's how it was all
Speaker 1: sold to us. No one was really sure how it
Speaker 1: was actually gonna shake out, but they were all sure
Speaker 1: that it would lead to this amazing virtual future. And Cisco,
Speaker 1: a comedy that continued to supply the technology that made
Speaker 1: Internet connect communication possible, was profiting from this excitement in
Speaker 1: a very real way. More companies were building up networks
Speaker 1: that meant they needed the equipment that Cisco produced in
Speaker 1: order to do that. Uh, they were going to Cisco
Speaker 1: primarily because it was the biggest name out there. It
Speaker 1: was the dominant manufacturer of various network components like routers
Speaker 1: and switches, so if you needed to build out your network,
Speaker 1: chances are you were going with Cisco hardware. They needed
Speaker 1: to establish safe networks, they had an air gap between
Speaker 1: the network and the Internet, so they would go with
Speaker 1: the best, biggest name in the industry. They needed the
Speaker 1: hardware that Cisco was known for, and the company was
Speaker 1: doing business like gang busters. In Fortune magazine would list
Speaker 1: Cisco among the Fortune five Companies list at number three
Speaker 1: thirty two. But in just a couple of years, Cisco
Speaker 1: would become the most valuable company in the world tech company,
Speaker 1: that is, for a short while anyway, Cisco first started
Speaker 1: offering cable modems for end users. This is one of
Speaker 1: the few products the company made for home consumers as
Speaker 1: opposed to enterprises. So they entered the consumer market in
Speaker 1: a limited way, uh and experimented with this for a
Speaker 1: little more than a decade, and Cisco would later purchase
Speaker 1: companies like links Is in two thousand three to increase
Speaker 1: this offering. Links Is makes routers home routers that kind
Speaker 1: of thing and had existed before Cisco came along. Then
Speaker 1: Cisco lumps links us and under its wing. However, Cisco
Speaker 1: would not hold on to all these consumer facing companies
Speaker 1: like links Is, which Cisco sold to Belcan in two
Speaker 1: thousand thirteen, one decade later. In fact, at that time,
Speaker 1: Cisco pretty much divested itself of all home market products
Speaker 1: in general. Interesting side note by the way links Is
Speaker 1: Cisco was founded by a married couple. This would be
Speaker 1: Janey and Victor sal who founded links Is, which originally
Speaker 1: had the name D E W International. And yes, the
Speaker 1: original site for that company was in fact a garage
Speaker 1: in California because the archetype exists for a reason. Marked
Speaker 1: Cisco's fifteenth anniversary. It had hit revenues of twelve billion dollars.
Speaker 1: It had grown so much through expansions and acquisitions that
Speaker 1: now had more than twenty thousand employees, and in March
Speaker 1: two thousand, Cisco hit its peak that it has never
Speaker 1: met since then. Spoiler alert, Cisco's market cap, which when
Speaker 1: it launched was two four million dollars I'll remind you,
Speaker 1: hit five hundred fifty five point four billion dollars in
Speaker 1: March two thousand. That meant Cisco had officially displaced Microsoft
Speaker 1: as the most valuable company in the world. This value
Speaker 1: was fueled again by the fervor around the Internet. Internet
Speaker 1: service providers were furiously building out their infrastructure and relying
Speaker 1: heavily on Cisco technologies to do so. The company was
Speaker 1: in great shape, and then the bubble burst. Now I've
Speaker 1: covered the dot com bubble and other episodes, so I'm
Speaker 1: just going to kind of give a quick summary of
Speaker 1: what happened here in the late nineties and into two thousand,
Speaker 1: even into two thousand one, to some extent, there was
Speaker 1: an almost unreal amount of investment pouring into internet ventures. Now,
Speaker 1: some of those ventures would prove to be good ideas
Speaker 1: that could stand the test of time, like Amazon that
Speaker 1: was able to survive the dot com bubble burst. Others
Speaker 1: were decent ideas, but the people behind them were unable
Speaker 1: to execute those ideas the way they had envisioned, so
Speaker 1: they weren't able to make any money off of this
Speaker 1: cool idea. And it might be that once the bubble
Speaker 1: did burst a few years later, someone else came along
Speaker 1: with a similar idea and they were able to make
Speaker 1: it work. At the time, it just didn't. Some of
Speaker 1: the ideas were just playing bad. But around this time
Speaker 1: in the late nineties, the general feeling was if you
Speaker 1: did not get in on this internet craze, if you
Speaker 1: did not put your money there, you were going to
Speaker 1: miss out on an incredible investment opportunity. The venture capitalists
Speaker 1: were blasting companies with huge investments. I mean, it was
Speaker 1: almost like people were throwing money at these startup companies
Speaker 1: they were finding themselves flush with cash. Some of them
Speaker 1: were finding themselves in possession of way more money than
Speaker 1: was necessary for them to actually do what it was
Speaker 1: they said they wanted to do. And lots of startup
Speaker 1: entrepreneurs went more than a little bonkers with all that dough.
Speaker 1: They started tricking out their offices with lavish furniture and amenities.
Speaker 1: They had spent huge amounts on stuff they didn't actually
Speaker 1: need that wasn't contributing to their business at all. Some
Speaker 1: of them didn't have a business plan to speak of.
Speaker 1: They had a cool idea, something that sounded neat, but
Speaker 1: they didn't have a strategy of how they were going
Speaker 1: to even generate revenue, let alone make a profit. And
Speaker 1: once the initial excitement started to die down, people began
Speaker 1: to ask hard questions, like how the heck is this
Speaker 1: company going to pay back the investment I put into it.
Speaker 1: The market peaked in March of two thousand, fueled by
Speaker 1: rampant speculation, and then the bubble burst. Now, why the
Speaker 1: bubble burst is complicated, as there were there's more than
Speaker 1: just investors waking up, right. It wasn't just people got
Speaker 1: out of bed one day and said hang on and
Speaker 1: then and then the balloon just totally pops. That's more
Speaker 1: simple than what really happened. A lot of startups had
Speaker 1: burned through their initial cash and had nothing related to
Speaker 1: show for it except pending disaster, and the dot com
Speaker 1: crash saw several internet startups go under just months after
Speaker 1: they had made headlines with incredible successful I p o s.
Speaker 1: These were companies that had failed to generate a profit, or,
Speaker 1: like I said, in a few cases, they had failed
Speaker 1: to make any revenue at all. While some of them
Speaker 1: received enormous amounts of investment money, that cash was spent,
Speaker 1: and without a steady source of incoming revenue or more investment,
Speaker 1: those companies couldn't stay afloat, so the market retracted. Cisco
Speaker 1: was in a different space. It was a big, established company.
Speaker 1: It wasn't about to go out of business, but it
Speaker 1: did take an enormous hit from this dot com bubble burst.
Speaker 1: Its stock price declined by more than eighty percent as
Speaker 1: a result, and the company had been on a rocket
Speaker 1: to the stratosphere before this. A lot of people were
Speaker 1: even predicting that Cisco was going to become the first
Speaker 1: trillion dollar company, but it's market cap ended up going
Speaker 1: from more than five hundred billion to one fifty one
Speaker 1: billion in two thousand one, and it would dip even
Speaker 1: lower in subsequent years, so it didn't go out of business,
Speaker 1: but its value was reduced to less than half of
Speaker 1: what it had been at its peak. By the end
Speaker 1: of fiscal year two thousand two, Cisco stocks were trading
Speaker 1: at around twelve dollars per share. The change from fiscal
Speaker 1: year two thousand one to two thousand two is noticeable
Speaker 1: if you look at timelines for Cisco, even once from
Speaker 1: the company itself, because companies tend to not want to
Speaker 1: draw attention to really difficult years, and they sometimes will
Speaker 1: just they don't necessarily fudge results, but they might leave
Speaker 1: details out. But there's an official Cisco timeline that gives
Speaker 1: you revenue and employee count every year from its founding
Speaker 1: up to two thousand thirteen. At the end of fiscal
Speaker 1: year two thousand one, the company posted twenty two point
Speaker 1: three billion dollars in revenue and they had thirty eight thousand,
Speaker 1: four hundred two employees. One year later, that had gone
Speaker 1: down from twenty two point three billion to eighteen point
Speaker 1: nine billion, and there were three thousand fewer employees Around
Speaker 1: but still, and you're talking about billions of dollars in revenue.
Speaker 1: It's not like Cisco was suddenly on the verge of collapse.
Speaker 1: It just was suffering a pretty big setback. But I
Speaker 1: was able to keep its footing, and CEO Chambers concentrated
Speaker 1: on trying to lead his company to reverse this trend
Speaker 1: and to go back into a period of growth. But
Speaker 1: it took a few years. Cisco revenues and employee count
Speaker 1: remained pretty flat from two thousand two to two thousand four,
Speaker 1: So first it was all about stabilizing the company, then
Speaker 1: it was trying to grow it again. During that time,
Speaker 1: Cisco was doing other business. They had gotten into the
Speaker 1: voice over Internet phone protocol system, so they were selling
Speaker 1: I voide phones. They had shipped four million of those
Speaker 1: by two thousand four. It had introduced security solutions in
Speaker 1: two thousand five, and it appeared to be on a
Speaker 1: slow climb back to where it was now. I want
Speaker 1: to talk a little bit more about what Cisco did
Speaker 1: in the aftermath of the dot com bubble and what
Speaker 1: it's doing today, But before I get into that, let's
Speaker 1: take another quick break to thank our sponsor. Two thousand
Speaker 1: six saw a big year of growth for Cisco. The
Speaker 1: company was really able to get out of that rut
Speaker 1: it was in. It was also getting into the business
Speaker 1: of telepresence. That's, you know, the whole video calling business,
Speaker 1: which in two thousand six was still a pretty young
Speaker 1: science and technology. It wasn't that it was really novel.
Speaker 1: Not a lot of people had had made use of it.
Speaker 1: Yet these days you can have it on your smartphone.
Speaker 1: It was still a dominant player in switches and routers
Speaker 1: at that time, and it had grown to nearly fifty
Speaker 1: two thousand employees, so it looked like it was well
Speaker 1: on the way to full recovery, and it continued to
Speaker 1: make strategic acquisitions. It also officially dropped Systems from its
Speaker 1: name and simply became known as Cisco. They also launched
Speaker 1: a campaign called the Human Network. This was an advertising
Speaker 1: campaign pain to uh kind of position the company as
Speaker 1: one that had a place in the average household, and
Speaker 1: this was a relatively short lived attempt for Cisco to
Speaker 1: make a bigger move into the consumer electronics market space. Ultimately,
Speaker 1: the company would change gears and again focus on enterprise customers.
Speaker 1: They would ultimately decide that it was a mistake to
Speaker 1: get into consumer electronics. Now. One very disturbing story involving
Speaker 1: Cisco around this time that first started to emerge in
Speaker 1: the UH around two thousand eight or so and has
Speaker 1: continued to be brought up in discussion since then, was
Speaker 1: the company's involvement in supplying technology to China. Now, according
Speaker 1: to allegations brought against Cisco by various human rights organizations,
Speaker 1: Cisco was instrumental and provide fighting and customizing technology for
Speaker 1: China's Golden Shield System. We have also called the Golden
Speaker 1: Shield System the Great Firewall of China. The Chinese government
Speaker 1: restricts access to the Internet, so a lot of sites
Speaker 1: are strictly forbidden, and the Great Firewall allows the Chinese
Speaker 1: government to essentially dictate which parts of the Internet are
Speaker 1: are are accessible within China and which ones should not
Speaker 1: be accessible within China. It's a very authoritarian approach to
Speaker 1: Internet access. Now, the allegations state that Cisco provided technology
Speaker 1: that allowed the Chinese government to identify and pursue individuals
Speaker 1: that the government had identified as being undesirable, people that
Speaker 1: the government had said are dangerous. That included practitioners of
Speaker 1: the Falloon Gong religion. So, according to the allegations these
Speaker 1: people were reportedly hunted down, captured towards, shured, and in
Speaker 1: at least one instance killed. The lawsuits accused Cisco of
Speaker 1: knowingly providing technology that would be used in those endeavors,
Speaker 1: saying there's no way the company would not have known
Speaker 1: that the tech they were designing for the Chinese government
Speaker 1: was specifically for the purpose of the government identifying, singling out,
Speaker 1: and pursuing specific individuals within China. The initial lawsuit was
Speaker 1: dismissed when a judge stated the plaintiffs had failed to
Speaker 1: provide evidence that Cisco would have known the technology would
Speaker 1: be put to such use. The plaintiffs appealed, with oral
Speaker 1: arguments happening in April seventeen, but then the submission of
Speaker 1: the case was vacated, pending the judgment on a different
Speaker 1: case that the Supreme Court was hearing. It was called
Speaker 1: Jesner versus Air of the Bank. At issue was whether
Speaker 1: or not foreign corporations could or could not be defendants
Speaker 1: in suits brought under the Alien Tort Statute. The Supreme
Speaker 1: Court found that they could not in a five to
Speaker 1: four decision, and as far as I intel the matter
Speaker 1: is at arrest, there that that in US courts will
Speaker 1: not hear the case. That's my understanding. Uh, it may
Speaker 1: turn out to be different. I am not a legal expert.
Speaker 1: One of the ways that Cisco tried to target consumers
Speaker 1: around this time was in the consumer video camera market.
Speaker 1: In two thousand nine, Cisco acquired Pure Digital Technologies. That's
Speaker 1: the company that was behind the flip video cameras. Do
Speaker 1: you remember those? They're kind of cool. I actually kind
Speaker 1: of thought they were neat. Uh. Cisco might have timed
Speaker 1: that kind of poorly, because two thousand nine was right
Speaker 1: around the time that the handheld cam quarter market was
Speaker 1: getting pushed aside by smartphones, more of which were including
Speaker 1: cameras capable of taking video. Cisco stuck with this plan
Speaker 1: until April, and then it discontinued the flip video cameras
Speaker 1: because the company was looking Cisco, that is, was looking
Speaker 1: to extricate itself from the home consumer market entirely. The
Speaker 1: space was too crowded with too many competitors, and many
Speaker 1: of those competitors had been at the game for way
Speaker 1: longer than Cisco. In fact, even longer than Cisco had
Speaker 1: existed as a company, so things were pretty rough for Cisco.
Speaker 1: There By two thousand eleven, other companies were also starting
Speaker 1: to really seriously compete against Cisco in the network infrastructure
Speaker 1: business that's the bread and butter of Cisco. At least
Speaker 1: up to that time, Cisco was still the dominant player
Speaker 1: that was no longer commanding nearly all the market the
Speaker 1: way it had been. As a result, the company's earnings
Speaker 1: were lower than what they had projected previously, and so
Speaker 1: Cisco had to look for ways to cut costs. And
Speaker 1: if you've worked for a big company, you probably anticipate
Speaker 1: what happened next, because one way companies cut costs after
Speaker 1: a rough financial year is by laying off employees. John
Speaker 1: Chambers essentially said, I've done goofed up the Really he
Speaker 1: was more professional than I make it sound, and it
Speaker 1: wasn't like it was an obvious mistake on the face
Speaker 1: of it. The problem, as Chambers admitted, was that Cisco
Speaker 1: had tried to compete in too many markets, many of
Speaker 1: which had entrenched players, like the home consumer market, for example.
Speaker 1: So the company was fighting a war that had too
Speaker 1: many fronts, and so Chamber said it was time to
Speaker 1: simplify Cisco's approach to narrow its focus, and unfortunately that
Speaker 1: also meant cut some jobs in the process, because those
Speaker 1: jobs would no longer be necessary for the company's mission.
Speaker 1: Chambers wanted to cut expenses by about six percent, but
Speaker 1: six percent meant one billion dollars. Some analysts estimated that
Speaker 1: could mean the company might eliminate as many as ten
Speaker 1: thousand jobs, which would be about four percent of its workforce.
Speaker 1: Others said it was probably going to be closer to
Speaker 1: four thousand. Now, according to Cisco's own timeline, it looks
Speaker 1: like the real number was somewhere in between four thousand
Speaker 1: and ten thousand. At the end of fiscal year eleven,
Speaker 1: the company had seventy one five employees. At the end
Speaker 1: of the following year, it was down to sixty six thousand,
Speaker 1: six hundred thirty nine. So, assuming some folks were brought
Speaker 1: on throughout two thousand twelve, either through acquisitions or through hires,
Speaker 1: that would mean around five thousand people were let go.
Speaker 1: It wouldn't be the last time Cisco would have to
Speaker 1: lay off a lot of people. In August, the company
Speaker 1: announced it would eliminate five thousand, five hundred jobs, and
Speaker 1: the following year it announced another eleven hundred positions would
Speaker 1: be on the chopping block. Now. That was probably because
Speaker 1: Cisco has pivoted. In recent years, the network infrastructure market
Speaker 1: has slowed down considerably because eventually you've got enough super
Speaker 1: highway laid down right. Internet service providers have built out
Speaker 1: their infrastructures. They might continue to UH implement new material
Speaker 1: into those infrastructures, but there's no longer this land grab.
Speaker 1: There's no longer this very fast expansion of Internet infrastructure.
Speaker 1: It's not necessary. A lot of of of organizations already
Speaker 1: have the equipment they need. So for the last couple
Speaker 1: of years, Cisco has had to look at a different
Speaker 1: source for revenue, something some other area of growth. They
Speaker 1: could still do business with network infrastructure materials, but it's
Speaker 1: not gonna have the year over your growth that investors
Speaker 1: want to see. So the company has switched to concentrate
Speaker 1: more on software and cloud computing services as well as
Speaker 1: the Internet of things. In fact, there's a pretty good
Speaker 1: chance that the Internet of Things got its name from Cisco,
Speaker 1: which was the organization that really recognized when individual uh
Speaker 1: network connected components were out numbering the number of people
Speaker 1: on the planet, saying well, we now have more devices
Speaker 1: connected to the Internet than there are people in the world.
Speaker 1: That happened, by the way, around two two thousand nine.
Speaker 1: One person who left his job was John Chambers, but
Speaker 1: that was his choice. He didn't get fired. He actually
Speaker 1: retired as CEO in twif As I mentioned earlier, his
Speaker 1: replacement was Chuck Robbins, the current CEO of Cisco. He
Speaker 1: had worked for Cisco for nearly twenty years. He had
Speaker 1: previously been the senior vice president of worldwide Operations. Now,
Speaker 1: if you listen to my last episode, you heard me
Speaker 1: say that a one thousand dollar investment in Cisco when
Speaker 1: it first went public wouldn't netted you fifty five point
Speaker 1: five five shares, which means they're around eighteen dollars per share,
Speaker 1: which made me wonder how much would they be worth today?
Speaker 1: So since that time, the company's shares have split multiple times,
Speaker 1: so you have to take all that into count. Fifty
Speaker 1: five point five five shares from would be more shares
Speaker 1: today because they kept splitting. So how many shares would
Speaker 1: you have today? Probably somewhere around sixteen thousand, that's how
Speaker 1: many times it splits. Now, keep in mind a split
Speaker 1: typically doubles the number of shares you have. Sometimes it
Speaker 1: can be more than that, depend upon the nature of
Speaker 1: the split. At the time I am researching this episode,
Speaker 1: Cisco shares our price at about forty two dollars eighty
Speaker 1: six cents per share. So if you do some multiplication,
Speaker 1: you take your sixteen thousand, you multiply by that, that
Speaker 1: would mean you're one thousand dollar investment way back in
Speaker 1: nineteen nine would be worth about six hundred eighty five thousand,
Speaker 1: seven hundred sixty dollars today. But hey, let's let's be fair.
Speaker 1: Let's sudjust that one thousand dollars for inflation, right, because
Speaker 1: a thousand dollars in nineteen ninety is worth more than
Speaker 1: a thousand dollars and twenty eighteen money, So in today's
Speaker 1: cash it would be worth about one thousand, nine hundred
Speaker 1: seventy seven dollars ninety four cents. So let's just rounded
Speaker 1: up to two thousand dollars. So a two thousand dollar
Speaker 1: investment in today's buying power back in nineteen would net
Speaker 1: you more than half a million dollars. That's after Cisco's
Speaker 1: struggles during the dot com crash and the two thousand
Speaker 1: eleven crisis, so that's not bad, though the company is
Speaker 1: still a far cry from its peak you have five
Speaker 1: billion dollars. In fact, as of the day I'm researching this,
Speaker 1: the company has a market capitalization of one nine point
Speaker 1: ninety three billion dollars. Still really impressive, but that's less
Speaker 1: than half of what it was at its peak, even
Speaker 1: before you adjust for inflation. Now, I've got another question
Speaker 1: for you. What if you had made that one thousand
Speaker 1: dollar investment back in nine, but then, you know, just
Speaker 1: at the very peak of Cisco's value, you sold off
Speaker 1: all of your your stocks. Let's say you just get
Speaker 1: this feeling in your bones. You're like this, this is
Speaker 1: about to take a downward turn, so I'm going to
Speaker 1: get rid of all my stock right now. Well, if
Speaker 1: you had done that, if you had taken that fifty
Speaker 1: five point five five shares of stock that you bought
Speaker 1: for one thousand dollars back in nineteen nine, and you
Speaker 1: sold it at its peak, you would have netted one million,
Speaker 1: two hundred sixty four thousand dollars more than a million
Speaker 1: dollars on a thousand dollars in ustment. That would be
Speaker 1: pretty darn suite. But that's hindsight, and hindsight is always
Speaker 1: twenty twenty. At the time, you would not have known,
Speaker 1: maybe you would have thought, Nope, it's on its way
Speaker 1: to a trillion dollar company. I'm holding onto these stocks, yes, sirree. Now, ultimately,
Speaker 1: the story of Cisco is a complicated one. It's a
Speaker 1: company that was founded on a collaborative effort that left
Speaker 1: a few of the collaborators upset at how their work
Speaker 1: was leveraged for commercial products. The technology from Cisco and
Speaker 1: the companies that acquired has made it possible for countless
Speaker 1: other businesses and organizations to adapt the requirements of the
Speaker 1: twenty first century. And while Cisco was blasted by the
Speaker 1: dot com bubble bursting, it's not like it was responsible
Speaker 1: for that mess. The company was investing billions of dollars
Speaker 1: and acquisitions, which likely helped fuel some of the speculation
Speaker 1: around the dot com bubble, but it wasn't engaged in
Speaker 1: the same sort of shenanigans that ultimately led to the
Speaker 1: bubble collapsing. They were more of a victim of that
Speaker 1: than someone was perpetrating the mess that caused it. So
Speaker 1: I'm not trying to lay blame at Cisco for the
Speaker 1: dot com bubble. Far from it. Well, that wraps up
Speaker 1: these two episodes about Cisco, where it came from what
Speaker 1: it does and where it's headed. It's very much in
Speaker 1: the cloud computing space and and software as a service
Speaker 1: space these days, so very different from building network cards
Speaker 1: and routers way back in night And of course the
Speaker 1: co founders haven't had anything to do with the company
Speaker 1: since nine so it's a very different company than what
Speaker 1: was formed out of a living room in San Jose
Speaker 1: back in the early eighties. Interesting story, lots of controversy there.
Speaker 1: I am curious to read more about a lot of
Speaker 1: the stories here, and maybe someday do another update, but
Speaker 1: for now, let's close the book on Cisco. If any
Speaker 1: of you have suggestions, like Gauge did, for any topics
Speaker 1: I should cover on Tech Stuff, whether a company, maybe
Speaker 1: it's a person in tech, maybe it's a specific technology.
Speaker 1: Maybe there's someone you want me to interview or have
Speaker 1: on as a guest host. Send me a message let
Speaker 1: me know. The email for the show is tech Stuff
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