Cisco Systems Inc. has officially unveiled plans for a $1 billion facility in Coyote Valley that would accommodate 20,000 workers, or more than double the networking company’s global workforce.
The expansion is a clear indication that Cisco expects to dominate the market for a new generation of data networks that would permit multimedia applications to travel rapidly across them. But competitors warned that it will be a fight for new market shares.
In a press conference Tuesday, Cisco Chief Executive John Chambers said the new jobs would be “classical Cisco jobs–engineering, customer support and technical support” in all areas of networking, but particularly in “the combined data, voice and video parts of networking.”
Many companies like Cisco that have traditionally sold equipment for computer networks are now pursuing a multimedia-networking strategy, hoping that customers will be lured by the potential of big savings if these new, “converged” networks actually work. One of them is the former Bay Networks Inc., which was bought last year by Nortel Networks Inc., the big, Canada-based telecommunications company.
Nortel believes that this marriage gives it a strong lead over Cisco. “If you consider what’s required to integrate voice, video and data, you really need to have knowledge on the data side, which is where Cisco and Bay are quite strong,” said Tony Clark, a vice president of strategic planning at Nortel. “But you also need incredible strengths on the voice side of the house.”
Both Bay and Nortel arrived at this conclusion, Clark said, and decided the merger made sense.
“When you combine the two companies and bring all the strengths frtom the telecom side and the data side, that gives you the ability to deliver products to the market faster,” Clark said.
Cisco has taken the slower route of making several smaller acquisitions of companies that, Clark said, “have little or no reputation in telephony and voice networking. Most of the carriers have never purchased equipment from any of the players that Cisco has acquired recently. The strategy we’ve deployed is superior.”
Cisco’s planned expansion also has raised some questions about the growing clout of this networking superpower in Silicon Valley and whether it will crush smaller companies.
At least one such company says it’s not afraid of Cisco. “I think (the expansion) is good, ” said Bobby Johnson, chief executive of Foundry Networks Inc. of Sunnyvale. “It’s a sign that the networking industry is alive and vibrant.”
Foundry makes very fast switches, which also have the ability to do basic “routing” of network traffic. But Johnson is bullish about its prospects vis-a-vis Cisco. “If you take a look at Cisco, they play in very different market segments. We are much more focused. Cisco is like a General Motors, and Foundry is like a Porsche.”
Despite espousing a global philosophy, Cisco’s operations are very centralized–in Silicon Valley. Competitor 3Com, on the other hand, has large operations in many parts of the country: Waltham, Mass., Salt Lake City, Chicago, and in England, Ireland and Israel.
Farrokh Billimoria, an analyst at Hambrecht & Quist, believes that Cisco weighed the risks of centralization before deciding to stay in San Jose.
