Chambers lectures on China, buyouts

CAMBRIDGE, Mass. - Cisco CEO John Chambers described the need for his firm to develop the network market in China and the company's strategy on acquisitions at a lecture last week at the Massachusetts Institute of Technology.

In a wide-ranging talk for students and faculty, Chambers said China poses great opportunity for Cisco, as the country has an increasingly higher-educated pool of engineers and is training 10 times as many workers in engineering, math and science as the U.S. The salary gap between engineers in China and other parts of the world also will force Cisco to be more productive on a revenue-per-employee basis, with the potential of moving more research and engineering work overseas.

"I'm proud [Cisco is] an American company, but my jobs will go to wherever the best infrastructure is," said Chambers, who spoke at the new Stata Center, the Frank Gehry-designed research center that Cisco donated money to build. Several thousand Fast Ethernet, Gigabit and 10 Gigabit Ethernet switch ports are installed in the building.

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CAMBRIDGE, Mass. - Cisco CEO John Chambers described the need for his firm to develop the network market in China and the company's strategy on acquisitions at a lecture last week at the Massachusetts Institute of Technology.

In a wide-ranging talk for students and faculty, Chambers said China poses great opportunity for Cisco, as the country has an increasingly higher-educated pool of engineers and is training 10 times as many workers in engineering, math and science as the U.S. The salary gap between engineers in China and other parts of the world also will force Cisco to be more productive on a revenue-per-employee basis, with the potential of moving more research and engineering work overseas.

"I'm proud [Cisco is] an American company, but my jobs will go to wherever the best infrastructure is," said Chambers, who spoke at the new Stata Center, the Frank Gehry-designed research center that Cisco donated money to build. Several thousand Fast Ethernet, Gigabit and 10 Gigabit Ethernet switch ports are installed in the building.

He half-jokingly said Cisco would later be taking applications on MIT's campus.

The facilities, resources and talent pool China provides for U.S. companies is hard to ignore, he said. The Chinese government has promised that 20% to 26% of its students will graduate in engineering and math, Chambers said. Around 30% of Cisco's workforce is either based in China or includes employees from the country, he added. This year, Cisco also opened a $32 million research and development center in China.

"We're not preparing students in this country," to compete with that, he said. "We have to create an environment where more students go into math and science."

The wage gap between U.S. and Chinese engineers is also shaping how Cisco allocates its resources and people.

"My workforce has to be five times as productive in this country than the rest of the world," he said, because engineers in India and China average around $40,000 a year in salary, while U.S.-based high-tech workers make upwards of $250,000.

Chambers said Cisco's $700,000 of revenue per employee last year was three times greater than Cisco's top competitors. "But if I don't take that to $1 million [of revenue per employee], then I won't be profitable in five years."

The tools and practices Chambers described for making his workforce more productive included many of Cisco's advanced technology offerings - such as IP telephony and video for collaboration, high-speed networks for ubiquitous access to data and mobility technologies such as wireless.

As for Cisco's acquisition strategy, Chambers said the company will continue to buy smart, small and local companies.

"We never acquire a company if it is not strategic to us," he said. Cisco will continue to make small acquisitions to enter new markets to bolster its technology offerings or to enhance the capabilities to its advanced technology products." He said part of the key to acquisition success is integration.

"When [Cisco] acquires a company, we are acquiring a next-generation product or technology, but we're also acquiring people," usually at a cost of around $1 million per person. He said that most acquisitions in the industry see 40% of employees of the acquired company leave after two years, while Cisco has kept its attrition rate of acquired employees at about 2%.