The Bloor Perspective: Crunch time for three giants: Cisco, Andersen and CA

With a 61 per cent year-on-year increase in sales for the fourth quarter and 55 per cent over the entire year, Cisco has just reported yet another improvement in its financial performance.

It exceeded the majority of Wall Street estimates as growth in all geographical areas and markets continued. This is all a part of the second Industrial Revolution - based upon the internet - which Cisco predicted five years ago.

During the financial year 2000, Cisco turned in revenues of $18.9bn compared with $12.17bn for the previous year. This 55 per cent increase resulted in a similar rise in pro-forma net income at $3.91bn. Actual net income was $2.67bn.

These figures are clearly enhanced by Cisco's continuing strategy of acquisition that brought in around 25 new businesses during the last fiscal year, all of whom contribute to the growing revenues. However, these businesses cannot always contribute to the bottom line figure since the costs of acquisition and written-off R&D need to be taken into account.

It is the skill of acquisition that continues to drive Cisco forward, even at times when other technology companies of all sizes are struggling to keep up with analyst expectations. It has a knack of identifying companies in developing markets that can become leaders with the support and resource it has to offer.

As a result these businesses prosper under the Cisco stewardship and success follows.

Even while the market for its traditional networking products - bridges, switches, hubs, routers etc. - is expanding dramatically with the growth in network and applications service provision, Cisco has been investing heavily in multimedia networking. It has been involved with optical and wireless technologies as well as voice handling solutions. The aim is to be able to provide a whole range of IP and ATM products to service providers to allow them to sell on data, video and voice services to their customers.

There is much to be learned from the way that Cisco operates. Its executives always take a cautious view and, consequently, are rarely caught on the hop by changes in the marketplace. It is always watching every aspect of its market - looking for the little minnows that can innovate and respond quickly to specific demands.

This is how it continually ensures that it has the best technology available, and that one of those minnows does not creep up behind it having grown into a monster along the way. Cisco continues to succeed because it works hard at its task and it deserves all that it has achieved.

*Andersen and Andersen*

After nearly two-and-a-half years of arbitration, Andersen Consulting has formally severed all links with Arthur Andersen and Andersen Worldwide.

An arbitrator appointed by the International Chamber of Commerce (ICC) has ruled that Andersen Worldwide was in breach of its obligations under the documents controlling the relationship between Arthur Andersen and Andersen Consulting.

As a result of this judgement, those agreements have been terminated and Andersen Consulting has been set adrift to carry out its business as it chooses.

Under the ruling, Andersen Consulting wins on all scores. It gets its independence and it also gets to keep the $14.5bn that Arthur Andersen claimed it owed. It is still required to pay its contractual transfer payments, all jointly developed software goes to Arthur Andersen and it must relinquish the Andersen Consulting name.

This is a clear opportunity for Andersen Consulting to reinvent itself under whatever new name it chooses - which is exactly what is expected by most people within the company and analysts.

There is a very strong view amongst analysts that Andersen Consulting had long been restricted by the conservative nature of its parent business. There is an expectation now that the new business will become much more aggressive in its approach to business with increased activity in new ventures - especially within the ecommerce sphere.

At the same time, Arthur Andersen is no longer required to offer any pretence of not competing in this area and is likely to step its activities whilst also benefiting from the Andersen name built up by its rival. It is entirely possible that the 'big 5' will, once again, become the 'big 6' in the near future.

*CA's re-jig*

It's time for change at Computer Associates.

Bad results have been followed by reorganisation and CA is spinning off two of its units as separate companies.

The top executives are also shuffling their jobs. This last move is unlikely to cut much ice, since the changes are scarcely radical. The same key people remain in the top jobs and investors may be looking for a more radical move.

The divestments are more interesting. CA plans to float its application service provider (ASP) operation under the name iCan-ASP. Interest in the potential for the ASP market is running high and following the successful launch of Corio on the stock market a couple of weeks ago, prospects should be good.

CA is also having a second attempt at floating off its accounting software business, based on the Accpac product.

Now CA has built its business on the acquisition of weak targets, so the idea that it needs to sell off major operations takes some swallowing. Are we about to witness some major shifts affecting all the large, diversified companies in the sector?

Looking at the wider corporate world, we have to delve into history to find conglomerates. Hanson and BTR in their heyday were very high flyers with top ratings from the stock markets. Their operations had obvious parallels with CA's: bought weaker companies, stripped out inessential elements and pressured the core into an altogether higher level of performance.

Yet, conglomerates like Hanson are a thing of the past. As they grew, their financial results weakened until investors started to question the value of combining different businesses under a single corporate banner. It has become received wisdom for companies to concentrate on their core competencies, disposing of any operation that fails to qualify.

The same trend could be emerging in the IT sector. Companies such as Compaq, HP and IBM immediately spring to mind. With signs that IBM is planning a shift of power from Lou Gerstner, and with HP and Compaq run by new blood, we could well see a new rash of speculation about major restructuring plans.

** Further analysis is available at http://www.it-director.com