By Network World Staff
Network World, 12/25/00

Cisco continues its remarkable pace by outgrowing the entire industry in its three key market segments: service provider, enterprise and "commercial" -- small/midsize enterprise -- markets. Indeed, the strongest thing Cisco did this year was continue its flawless execution while forcing rivals to retreat from long-held markets, most notably the enterprise segment.

Highlights of 2000 include the $5.7 billion acquisition of ArrowPoint Communications for Web and content switching; an 8,000-seat voice-over-IP network installation in New Zealand; and double-digit sequential growth in the enterprise market, with a couple of quarters exceeding 20%. This growth is truly remarkable given Cisco's chief enterprise competitors are either exiting, ignoring or de-emphasizing this market, or restructuring to win back market share.

Also, Cisco now has 12 product families that are at or above the $1 billion annual booking run rate. Revenue for fiscal 2000, which ended July 29, was $18.9 billion, compared with $12.2 billion for fiscal 1999, an increase of 55%. It projects revenue growth for fiscal 2001 in the 50% to 60% range, or tallying between $28.4 billion and $30.3 billion.

But Cisco faces major challenges, and pundits say the company cannot keep up its sterling performance for much longer. Cisco's day of reckoning may be fast approaching, they say.

The first challenge is in protecting its router share in the service provider market. Juniper Networks has almost one-third of the WAN router market, nearly double its share of a year ago. This has come at the expense of Cisco, which saw its share slide from slightly more than 80% a year ago to less than 70% in the third quarter of 2000.

The second challenge is in attaining the No. 1 or No. 2 position in new markets, predominantly optical and wireless. Nortel Networks is the preeminent supplier of optical network gear to service providers, and the company seems likely to retain the top spot while holding off hungry rivals -- Cisco included. Cisco also faces the Nortel obstacle in wireless.

The third challenge is Cisco's growth. The company acquires 20 to 25 smaller companies per year, sometimes splurging billions on bigger ones. Some industry watchers say Cisco may end up buckling under that weight, losing the intellectual talent it acquires and suffering in innovation.

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