Cisco Shift Gums Up the Works for Rivals

If Cisco (CSCO) is looking more and more like the glue of the networked world, its communications equipment-building rivals are in a stickier fix than ever.

With sales of personal technology growing furiously and networking gear getting cheaper and more ubiquitous, analysts expect 2003 to bring a virtual population explosion among network gadgets. Soon enough there will be literally billions of digital camcorders, personal digital assistants and other devices that will call out for a simple interconnection standard.

With $20 billion in its war chest and a vow to enter a dozen new markets, investors say, Cisco is in an unrivaled position to bend these new, simpler networks to its own specifications. Doing so could help to answer some of the swirling questions about the one-time highflier's growth prospects. It could also turn the ever-present spotlight on Cisco's acquisition prospects away from the sagging communications gear sector to something completely different and perhaps more forward-thinking -- network software.

"Cisco could be the glue," says Francis McInerney of North River Ventures, a New York telecom strategy shop. "They are in the best position to do it. They have the money, the experience and the IP [Internet protocol] technology that can help turn everything into seamless services."

Minding the Gap

While a pickup in the connectivity business could deliver a sales boost at the growth-deprived networker, it almost surely means more bad news for its red-ink stained rivals. Investors in these beaten-down names, from Lucent (LU) to Ciena (CIEN), continue to cross their fingers -- against all apparent odds -- that Cisco will decide to buy them out of their misery.

Ahead of the Pack Cisco's market cap drawfs that of North American rivals

*Lucent, Nortel, Ciena, Tellabs, Juniper, 3Com, Foundry, Extreme, Redback, Riverstone

Over the past several months, Cisco has been rumored to be interested in everything from storage-software maker Veritas (VRTS) to optical networking shop Ciena. But there is a stark contrast between market talk and Cisco action. In 2002, Cisco made four relatively minor acquisitions, a far cry from the 23 deals it made in 2000. With a weak stock and a turbulent war-wary market, analysts expect Cisco will continue to play conservatively.