Cisco Systems Inc‘s Aggressive Strategy to Become the No. 1 IT Company

Cisco has been expanding its cloud services portfolio for the past year now but its strategy has become much more aggressive since the beginning of 2014.

Jun 5, 2014 at 10:00AM

Cisco (NASDAQ:CSCO) shares have been climbing rapidly and steadily since the middle of March. It jumped nearly 7% on May 15th after the company beat analyst's revenue estimates by $0.03 per share. Between the strong growth in the company's stock these past few months and the news coming in about its recent investments, partnerships, and acquisitions, Cisco has become a highly desirable stock to own.

Cisco in the cybersecurity sector
Cisco has been in talks with Dov Yoran, owner of ThreatGRID, since late last year. This month, the two finally announced that they had reached a deal in which Cisco will acquire the young cybersecurity company. The exact terms and value of the deal have not yet been disclosed.

Cisco plans to incorporate the ThreatGRID system into SourceFire, which it acquired last year for $2.7 billion. The strategy is to build a comprehensive cybersecurity and threat intelligence system that will dominate the market for such software.

Cybersecurity is an especially hot topic right now, and it is definitely no coincidence that Cisco announced this deal while the FBI launched a major crackdown on hackers, Chinese hackers were accused of espionage, and both eBay and Target are attempting to recover from cyber attacks.

The deal represents part of Cisco's larger plan of expanding its Advanced Malware Protection portfolio in order to become a dominant player in the cybersecurity market.

According to the company's announcement , the deal is expected to close by the end of the fourth quarter of fiscal year 2014. Cisco's stock is already up nearly 2% on the news of the intended acquisition, and could see another jump in 2015 when revenues from the deal begin to come in.

Building the largest Intercloud
Cisco Systems has partnered with Dimension Data, Sungard Availability Services, and Telstra (among others) to build the world's largest globally distributed cloud platform. The ambitious move officially began in March when Cisco announced its intentions to invest $1 billion into its Intercloud services efforts over the course of the next two years.

It has been expanding its cloud services portfolio for the past year now, but its strategy has become much more offensive since the beginning of 2014. It is pulling in many different partners and sweetening its deals in order to steer companies away from partnering with competitors like Amazon.com's Web Services or the Hewlett-Packard's public cloud.

Cisco's Intercloud aims to seamlessly connect public, private, and hybrid clouds across multiple platforms. The full details of the strategy, including how all these partners will work together without encountering competitive issues, have so far been kept mostly under wraps. However, the company's heavy investments and aggressive recruitment of partners are clear signs that it has a solid strategy in place.

The company predicts that the cloud services market (including public, private, and hybrid cloud systems) is potentially a $19 trillion market. The company's aggressive move into this sector is understandable, and it should bode well for investors taking a long position.

Checking out the competition
Cisco is not alone in attempting to break in to either of these two markets. The company faces some stiff competition. Young, fresh companies like Fireeye (NASDAQ:FEYE) or Fortinet (NASDAQ:FTNT) broke into the same emerging market a little earlier than Cisco did. Both already have sandboxing technologies similar to Cisco's recently purchased ThreatGRID. However, these companies simply don't have the capital backing of Cisco, so if these strategies are as effective as the company believes they will be, it will likely be able to come back and dominate at least cyber security again.

More indicative of Cisco's relative strength when compared with its competitors is the movement of the companies' stocks. Fireeye has been on a constant downward trend. In the past three months, it has dropped from nearly $100 per share to just $34.65 per share. During the same time period, Fortinet has been extremely volatile, fluctuating between $20 and $24 per share. Cisco, on the other hand, has seen consistent growth over these three months.

Conclusions
Because of its strategic investments, acquisitions, and partnerships, Cisco Systems has made itself attractive to investors. By focusing on a few key growth sectors instead of spreading itself thin across a variety of no-longer-profitable areas, Cisco invests its cash effectively and operates its business efficiently. A long position could be profitable as the real growth we can expect to see from this company is likely to be a few years in the making. However, all signs point toward it being a fast-growing, highly profitable company in the years to come.

Are you ready for this $14.4 trillion revolution?
Have you ever dreamed of traveling back in time and telling your younger self to invest in Apple? Or to load up on Amazon.com at its IPO, and then just keep holding? We haven't mastered time travel, but there is a way to get out ahead of the next big thing. The secret is to find a small-cap "pure-play" and then watch as the industry -- and your company -- enjoy those same explosive returns. Our team of equity analysts has identified one stock that's ready for stunning profits with the growth of a $14.4 TRILLION industry. You can't travel back in time, but you can set up your future. Click here for the whole story in our eye-opening report.

Haris Qureshi has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Cisco Systems, and eBay. The Motley Fool owns shares of Amazon.com and eBay. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers