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Cisco Plans To Enter New Markets--But Not Buy Nokia

Cisco Systems, enjoying success in the new markets it has entered in the past couple of years, plans to attack five or six new "advanced technology" markets in the next year or two, CEO John Chambers told analysts last week. But he wouldn't say which markets--and dismissed a news report that Cisco might buy cell-phone maker Nokia.

Chambers made the comments during a conference call in which the company reported that fourth-quarter revenue rose 11% from a year ago to $6.6 billion, and net income rose 7% to $1.5 billion.

For the full fiscal year ended July 30, revenue rose 12.5% to $24.8 billion, while profits rose 29% to $5.7 billion.

John Chambers, CEO of Cisco Systems
Large-business customers, which make up about 45% of Cisco's revenue, are still tight with their capital spending, and Cisco's sales growth with them was only in the high single digits. Small and midsize businesses were Cisco's fastest-growing customer segment, with year-over-year growth of more than 20%. Cisco's services unit posted revenue of $1.1 billion for the fourth quarter, the first quarter that unit posted more than $1 billion in revenue. But chief development officer Charles Giancarlo says Cisco doesn't intend to become a services company and will continue to rely on integration partners.

Chambers noted that several years ago, when Cisco was suffering along with most other tech companies after the Internet boom went bust, the company decided to invest in several areas it calls "advanced technologies." That investment has paid off, he said, in markets such as enterprise IP communications, security, wireless LANs, home networking, storage, and optical communications.

Enterprise IP communications and security have become billion-dollar businesses for Cisco, while home networking and wireless LANs are getting close to that level, Giancarlo says. And they're still showing strong growth. Enterprise IP sales, for example, rose 50% in the fourth quarter from a year earlier. Storage orders grew better than 40%, while orders for home networking, security, and wireless LANs grew about 35%. "We intend to introduce a second wave of advanced technologies," Chambers told analysts. "We intend to introduce a new one every three or four months in the next fiscal year."

Chambers dismissed rumors that Cisco might buy cell-phone equipment maker Nokia. "It's extremely unlikely that we'll do a large acquisition. They almost all fail," Chambers said. "I was very surprised at the credibility the market gave to recent rumors."

So what does Chambers look for in an acquisition target? A private company with around 100 employees that's just starting to generate revenue, he said. In the most recent quarter, Cisco completed the acquisitions of Fine Ground Networks, M.I. Secure, NetSift, Sipura Technology, TopSpin Communications, and Vihana.

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