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'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.

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.

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Haris Qureshi has no position in any stocks mentioned. The Motley Fool recommends, Cisco Systems, and eBay. The Motley Fool owns shares of 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.

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