Cisco's reorganisation can't unpop the bubble

The reorganisation of Cisco Systems might streamline the company and make it more efficient, but it's unlikely to return the vendor to its glory days, analysts and users say.

Cisco's revenue grew tremendously over the past four years, skyrocketing from US$6.4 billion in fiscal year 1997 to $22.3 billion in fiscal year 2001, but the fuel for that growth -- a torrid buying spree from well-funded Internet start-ups and telecommunications players - is gone. A reorganisation like the one Cisco announced this week can help the company, but it will not have an effect on the slowing demand for Cisco's products.

There's a lot of Cisco gear on the market without buyers, resellers say. Failing dot-coms and Internet service providers are dumping gear on auction Web site eBay Inc. for whatever they can get for it, some of it still in the original unopened boxes Cisco shipped it in.

"Word on the street is that there's more Cisco inventory out there than anything else," said Rohi Sukhia, president of Tradeloop Inc., an online trading community for resellers. "You can buy used Cisco equipment for pennies on the dollar," he said. "It's no wonder they're having trouble selling new stuff."

Cisco's channel partners may prove to be another potential area of concern. The reorganisation of sales teams could herald movement toward more direct sales, leaving Cisco equipment retailers like Ingram Micro Inc. and Tech Data Corp. in the cold, one Cisco user said.

"There have been some rumblings about moving toward direct sales," said Blake White, a network engineer project manager for Metro Information Services Inc. and the president of the Southeast Virginia Cisco Users Group. "We don't know how it is specifically going to affect the channel we use today... whether that channel is going to be circumvented, with certain partners buying their equipment directly."

Still, after years of rapid-fire acquisitions -- 23 companies in 2000 alone -- and a radically different financial environment in which to market networking gear, a little housecleaning might be in order for the company, observers say.

Rather than organising around market groups as it had been with its three divisions -- enterprise, service provider and commercial markets -- Cisco will organise around products instead. Engineers and salespeople will be rearranged into 11 product areas: access, aggregation, Cisco IOS (Internetwork Operating System) Technologies Division (ITD), Ethernet access, Internet switching and services, network management services, optical, routing, storage products, voice, and wireless.

The move will help Cisco keep from having researchers in two different departments from developing the same technology, and will allow engineering innovation in one section to be more quickly integrated into the others, Cisco said.

Still, an analyst calls the move "strange."

"In a time when everyone seems to be so focused on the customer, reorganising around product lines seems a bit strange," said Maribel Dolinov, a senior networking analyst for Forrester Research Inc.

The many acquisitions have also rubbed some customers the wrong way, because many feel that Cisco hasn't done a good job of integrating the products and technologies it has acquired, she said.

"I've spoken to a lot of service providers, and in my opinion they're disgruntled because (Cisco has) made a lot of acquisitions and the acquisitions didn't work," Dolinov said. Two pieces of networking gear from the same company might be expected to work together, but Cisco isn't just one company. Service providers have "the same multi-vendor problems, only with one vendor," she said.

Cisco stock (CSCO) took off Friday morning on comments made by John Chambers, Cisco's president and chief executive officer, related to the reorganisation. "We are making these changes at a time when we are beginning to see signs that our business is stabilising," he said, adding that the company is taking in orders as it expected it would.

Cisco opened at $17.50 on the Nasdaq exchange -- up 4.4 percent from Thursday's $16.96 close -- and climbed another 7.15 percent to $17.96 in midday trading.

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