Cisco Systems Inc - Growth Via Acquisition

Cisco launched an acquisition spree in 1993, paying $100 million for Crescendo Communications, creator of copper distributed data interface technology. Setting the stage for how future acquisitions would be integrated into existing operations, Cisco retained Crescendo head Mario Mazzola and all of his employees. Eventually, Crescendo served as the foundation for a unit of Cisco that brought in roughly one-third of total revenues. Success with this purchase prompted Cisco to continue paying for companies with products and services in high growth areas, rather than spending money on research and development to create its own products. In essence, Cisco started looking for a startup to purchase any time management determined that a rival had gotten a considerable jump start in an area the firm wanted to pursue.

Cisco paid $91 million for LAN technology developer Newport Systems Solutions in 1994. In October, the firm beat out IBM Corp. with a $204 million bid for Ethernet switch maker Kalpana Inc. When Kalpana executive Mimi Gigoux criticized Cisco's integration efforts, the firm appointed her an integration specialist. She eventually headed up a team of 11 employees dedicated to making the integration process for Cisco's many acquisitions as smooth as possible. Eventually, Kalpana's team was responsible for reducing the turnover rate of employees gained via takeovers to roughly two percent, compared to an average rate throughout the networking industry of 20 percent.

Also in 1994, the firm released its newest networking technology, dubbed CiscoFusion, which eventually included an ATM interface processor and Catalyst FDDI-to-Ethernet LAN switching technologies. By then, Cisco held a 57-percent share of the worldwide multiple protocol networking market, and its routers had started being used to power the Internet. Sales exceeded $1 billion for the first time. Although shareholders protested a proposed $348 million takeover of Ethernet switch maker Grand Junction Networks Inc., and expressed their support of internal research and development rather than continued purchases, Cisco continued to seek growth via acquisitions. It completed the takeover of Grand Junction networks the following year. In fact, it was these aggressive acquisition tactics that were later credited for Cisco's astronomical growth well into the late 1990s.

U.S. Robotics and Cisco inked a technology sharing alliance in 1995. By the following year, Cisco's routers were considered an integral part of the Internet. Making its largest purchase to date, Cisco paid roughly $4 billion for Stratacom Inc. in 1996. The firm also paid $100 million for Nashoba Networks, a maker of token-ring network hubs; $79 million for NetSys Technology Inc., a networking technology vendor; and $220 million for Granite Systems, a manufacturer of gigabit Ethernet technologies. As a result, Cisco ended up owning plants manufacturing three rival Ethernet switching systems. Although Cisco's Internet-related activities thrived, the anticipated threat of emerging low-cost routers prompted the firm to continue its efforts to grow via acquisition.