It wasn't so long ago that John Chambers was lecturing world leaders on how to prepare for the new era of the Internet, and shaking his head sorrowfully at those who didn't listen. The globe-trotting Cisco Systems CEO explained to Ryutaro Hashimoto, then prime minister of Japan, that Tokyo was not spending enough money on building an IT infrastructure for the future, but Hashimoto didn't listen and, "he got beaten in the next election". However, "when I talked to Jiang Zemin in China, Tony Blair in the UK or John Howard in Australia, they understood. . ." he told Nasdaq magazine in January. So too did South Korean PM, Kim JongPil, who "stopped me and said, `John, we got the message two years ago. . .we missed the first industrial revolution, we're not going to miss the second'."
Besides being a world-class name-dropper, the poster boy of the New Economy is a mesmerising speaker, an evangelist for a world wired to the Internet for which Cisco provides 80 per cent of the routers, the key technology that directs trillions of messages and images to their correct destinations.
In 1998 Mr Chambers stunned a group of telecom executives by declaring that the old-style telephone was on the way out, as "voice would be free" over the net, transmitted of course by Cisco hardware. John Chambers was still then the leader of the New Economy, the superior CEO, who for 13 quarters in a row achieved a 75 per cent growth in sales, until on March 27th, 2000, Cisco's market cap reached an unbelievable $550 billion, making it the most valuable company in the world. Curiously it was one of the few top US tech companies not to invest in Ireland, though it was on the brink once and Mr Chambers said in March it was still an option.
Then, in John Chambers's own rueful explanation, came the "hundred-year flood". On May 8th the San Jose-based company reported its first quarterly loss. It announced a massive $2.5 billion write-off of excess parts of its swollen inventory. It is laying off 8,500 employees, 18 per cent of the workforce. Sales have slumped 30 per cent. Shares have tumbled 65 per cent since December. Cisco's growth shuddered to a halt; after acquiring 23 companies in 2000 it has yet to buy one this year.
The slowing economy left Cisco in deep water, but boardroom miscalculations played a big part. Demand for equipment from Cisco disappeared like snow in the dot.com meltdown. Huge chunks of business went down the drain with failed Internet companies, some of which Cisco had bought. Many of these were upstart service providers which had emerged through deregulation and had hoped to capture some of the long-distance telephone business with next generation telephone gear. Though Cisco routers are standard in America's long-distance telephone giant, AT&T, many established telephone companies had turned to rivals Nortel and Lucent for new equipment.
John Chambers is still upbeat, though the faith of his followers in the ability of sophisticated software systems to anticipate demand and supply patterns has been severely shaken. The huge inventory write-down may be an attempt to absorb all the pain at once, some analysts say. Cisco remains a huge corporation worth $115 billion, with $4 billion in cash. The 51-year-old CEO forecasts that Cisco will return to profitability by focussing on broadband equipment and Internet-based phone systems. It is mounting a challenge in the new market for optical switches that direct data over light beams travelling through fiber-optic cables.
Meanwhile unfinished buildings at Cisco's mini city-state in San Jose - it takes several minutes just to drive by - are having windows installed (oldtechnology type) to hide the fact they are empty. "It is now clear to us that the peaks in this economy will be much higher and the valleys much lower and the movement between these peaks and valleys much faster," Mr Chambers said last week. But he conceded, "We are now in a valley much deeper than any of us anticipated".
