Cisco Shift Gums Up the Works for Rivals

Meanwhile, a shrinking trend in the sales-starved information technology and telecom gear markets all but throws the various players into theoretical alliances based on product types and customer appeal. But CEO John Chambers has firmly said Cisco will not buy a competitor. And despite how much investors and industry types would want Cisco to jump-start the action in a fading sector, the industry gorilla will likely remain on the sidelines.

The company has navigated fairly well in the downturn, in part by preserving its cash and limiting itself to repeating the gospel of productivity enhancement. Cisco has continued to emphasize the commercial efficiencies of an increasingly networked planet, while sprinkling in a few small moves here and there.

Now, however, the industry's scales are almost entirely in Cisco's favor. The computer networker's cash position alone is larger than the combined market capitalization of its four largest North American rivals.

On one side of the field you have a shrewd and frugal acquirer with plenty of cash and loads of hesitation. On the other side are countless beaten-down tech companies with talent and products aimed idly at any number of possible growth opportunities.

This has been true for more than a year. The only thing that has changed is that Cisco has raised its target from nine new growth markets to 12, with 15 being the eventual goal next year.

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Why the apparent scramble?

Alarmingly, Cisco's roaring growth engine has stalled for the past year and its core routing and switching business -- a $14 billion-per-year slice of the information technology spending pie -- is in danger of being carved up by lower-priced gear from rivals like Dell (DELL - Cramer's Take - Stockpickr) and China's Huawei.

Man With the Mustache

With that in mind, Cisco's growth hunt has stimulated even more than the usual chatter. And some software analysts say Cisco's untapped growth market might be right under its nose.

"Cisco is the king of data hardware, but these things are far too complicated right now," says Amy Wohl, a software analyst with Wohl Associates in Narberth, Pa. "We need a combination of hardware and software to create automation and simplicity. It requires imposing levels of software across the top of the network to make these systems more manageable."

It's not an unreasonable leap of logic to suggest Cisco could jump on the popular software bandwagon and add network management or security programs to its extensive hardware operating system. Sun (SUNW - Cramer's Take - Stockpickr) and IBM (IBM - Cramer's Take - Stockpickr) have been acquiring software outfits largely to spread their businesses beyond hardware.