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Cisco Systems, Inc. Case Study

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Cisco Systems, Inc.

Abstract

Cisco Systems, Inc. , Juniper Networks, Inc.,and Hewlett Packard Enterprise Co., (HP) are both multi-national technology corporations, and some of the experts believes that HP is Cisco’s biggest competitor in many fields. In this report, I would present my understandings and analysis about Cisco, and compare some of the ratios with HP, which intend to help investors to tell the differences among companies and to make better choice.

History

Cisco Systems, Inc. (CSCO) is a multi-national technology corporation that designs, manufactures, and sells broad lines of products, provides services and delivers integrated solutions to develop and connect networks around the world. Cisco Systems, Inc. was started in December 1984 in San Jose, California. The company name ‘ Cisco’ was taken from the name of the city ‘San Francisco’. Leonard Bosack and Sandy Lerner are the founders who were the employees of the Stanford Computer Department. They used the university’s multiple protocol router software as a foundation to build their own router. In 1987, they were able to create their own product that was able to support multiple protocols between different hardware and networks. Cisco became the first company to provide this multi-protocol router that bring Cisco a great successful. In 1990, Cisco became a public corporation and had nearly $70 million in revenue, almost 20% of revenue, $14 million, became profit. After that, Cisco kept the fast speed of growth and established subsidiaries in many countries. Today, they have over 70,000 employees in over 400 subsidiaries worldwide who design, produce, sell, and deliver products, services, and solutions. Currently, the products and technologies are grouped into: Switching; Next-Generation Network (NGN) Routing; Collaboration; Service Provider Video; Data Center; Wireless; Security; and Other Products.

The Industry

The entire networking and communication devices industry is in technology sector. The top 5 of Market Cap are CISCO (133.85B), HP (20.13B), Juniper (8.72B), Palo Alto Networks, Inc. Common (12B), and ZayoGroup Holdings, Inc. Common (6.6B). We can easily find out that CISCO holds the largest Market Cap, which is larger than the combination of rest four companies. Hewlett Packard Enterprise Co., and Juniper Networks, Inc. are two biggest competitors for CISCO.

Hewlett Packard Enterprise Co., (HP) (NAICS Code: HPQ) seems to be the biggest competitor to Cisco. HP founded in 1939 by William R. Hewlett and David Packard, and went public in 1957. In 2015, HP acquired Aruba Networks Inc., which is one of the strongest competitors of Cisco in selling enterprise wireless LAN and edge access networking equipment.

Juniper Networks, Inc. (JNPR) designs, develops, and sells network products and services worldwide. It offers various routing products and security products. Additionally, it provides technical support and professional services, as well as education and training programs. Juniper was founded in 1996 and is headquartered in Sunnyvale, California

Powers

Buyer power

The power that the buyer holds over CISCO is that several competitors like HP and Juniper provide similar Internet Protocol (IP) based networking products. The switching costs for CISCO products are relatively high but for services are not. The CISCO has an undifferentiated product line that buyers can choose from other options. Costumers were wanting some high cost-effective products, so CISCO can use its new technology to increase the differentiation among other providers. In order to get the buyer power back, CISCO can also provide products-related services.

Supplier power

There is a small amount of suppliers of high tech equipment that CISCO needs that can satisfy the high speed and quality the costumer desire. To get the suppliers power back, CISCO can standardize the produce process to reduce needs of costume parts, and looking for substituting supplies.

New entries

CISCO has no need to worry too much about new entries, the barrier of entry is high. For new entries, the industry requires huge amount of investment on research and development, and it is very difficult for new entries to get market shares. To increase the barrier of new entries, CISCO has to increase innovation and R&D.

Substitutions

CISCO holds more power on substitutions. CISCO holds a large amount of high-end techs, and it also has a relatively large range of products and services. The solutions on communication and technology help CISCO reduce threats from substitutions. In order to keep these advantages, CISCO should go deeper on R&D to expand products and services.

Rivals

CISCO has the largest market share in Internet Protocol (IP) based networking products and CISCO has relatively few competitors for their products and services.

However, HP and Juniper provide similar products and IBM provides similar services that may cause some threats to CISCO. Thus, CISCO have to pay more attention on innovation and R&D to increase products and services differentiations to keep rivals power.

Cisco’s management has always assumed full accountability for maintaining compliance with their established financial accounting policies and for reporting objectivity and the highest degree of integrity. They are very confident about the financial information that is timely, complete, relevant, and accurate.

Finance Data

 

Cisco

HP

Juniper

Sector

Technology

Technology

Technology

Type

Large core

Large Value

Mid core

P/E

13.81

5.55

14.35

EPS

2.02

2.08

1.59

Profit margin %

20.8

3.72%

13.05%

EBITDA

14.28B

11.07B

1.08B

PEG

1.4

12

0.86

CISCO is compete by differentiate from other competitors. It has a very large range of products and services, and the ability of research and development is strong enough to support it expand products and services offers.

Cloud servece and VR technology are hot topics recently. Cisco is trying to seize these opportunities step on an unbeatable position. Thus Cisco is looking for new chance to purchase or innovate by itself to take advantages of new challenge.

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