Cisco Corporation history

A manufacturer of INTERNET routing equipment founded in 1977 by two Stanford computer specialists who invented the Internet router because they could not communicate with each other over the Internet using the current technology. In less than 20 years, Cisco would become the most widely held stock in the country and at one time had the highest market capitalization of any stock in the United States.

The company began to grow exponentially, paralleling the use of the Internet, first in academia and then in general commercial use. The company grew rapidly in the 1990s, under the aegis of John Chambers. He joined Cisco in 1991, when it was already becoming known as a Wall Street favorite. Chambers became CEO in 1995 and continued the aggressive strategy that made the company a phenomenally rising star.

Rather than build from the ground up, the company adopted a growth-by-acquisition strategy in the 1990s. Using a rising stock market to good advantage, Cisco acquired many companies in related fields by paying for them with its own stock, which kept rising in the market because its earnings continued to grow. For example, the company paid $4.1 billion for StrataCom in 1996, a manufacturer of computer networking technology. At the time, the acquired company had sales of $335 million, meaning that Cisco paid a multiple of 12 times sales for the company. Paying multiples of sales or potential sales was a sign of the “new economy,” in which all tried and tested techniques of valuation were overlooked. Three years later, Chambers announced that Cisco was paying $7 billion for privately owned Cerent Corporation, a small network equipment company that had been in existence for only a year.

The strategy made Cisco the largest manufacturer of Internet routing equipment, identified closely with the Internet itself. But the acquisitions growth began to slow considerably in 2000, when the stock market indexes began to fall, and Cisco could no longer use its increasing stock value to pay for acquisitions. During the 1990s, its acquisitions were paid for with what was known as “Cisco money,” highly priced stock that paid for additional acquisitions at prices unheard of in the technology industry.

Cisco began to experience competition from overseas manufacturers in the late 1990s and early 2000s but maintained its market in the face of competition. After its stock fell to a low of $9 per share, the company became identified with the excesses of the Internet age, although it remained the premier company in its industry and one of the most widely held stocks in the country.

Further reading

Bunnell, David. Making the Cisco Connection. New York: John Wiley & Sons, 2000.
Paulson, Ed. Inside Cisco: The Real Story of Sustained M & A Growth. New York: John Wiley, 2001.
Slater, Robert. The Eye of the Storm: How John Chambers Steered Cisco through the Internet Collapse. New York: HarperBusiness, 2003.
Waters, John K. John Chambers and the Cisco Way: Navigating Through Volatility. New York: John Wiley; 2002.