Cisco CEO John Chambers was unusually enthusiastic after his company’s solid earnings report yesterday.
Today, he followed up with a slightly more subdued keynote appearance at the Goldman Sachs tech conference in San Francisco, where he spoke a little bit about Cisco’s acquisition strategy.
Cisco is known for buying startups. In fact, Chambers said that acquisitions had added an average of 2% to its earnings per year.
In 2014 Cisco was expected to make $US4 billion to $US5 billion in acquisitions, the Goldman Sachs interviewer noted. Instead, it did hardly any.
When asked why Chambers said that the company’s acquisition strategy has not changed. “We still like small to medium-sized acquisitions,” especially if they complement what Cisco does internally with its own startup-like teams.
But he gave three reasons why they slowed down a bit last year:
- Valuations. A lot of the startups Cisco looked were overpriced with high price-to-earnings ratios, Chambers said. “That’s not a good decision for us, or for us as shareholders as well.”
- Internal restructuring. Cisco underwent a pretty major reorganization last year, moving 40% of its employees around and breaking down individual business units to focus more across the company. Integrating acquisitions during that period would have been complicated.
- Taxes. Chambers has been harping against U.S. tax policy for years, as it requires companies to pay more than a 30% tax rate on revenues they make overseas if they bring that money back into the country for acquisitions (or for any other reason, like paying a dividend). As a result, Cisco still keeps most of its money overseas, and finds foreign acquisitions “easier.” He is hopeful that Congress will pass a law proposed by Senators Rand Paul and Barbara Boxer that would create a temporary tax “holiday” for companies to bring home overseas money, but he put the chances of passage at less than 50%.
Overall, he wasn’t quite as cocky as he sounded on yesterday’s earnings call, but he did take a little time to boast that Cisco is doing better than any time since the 1990s.
“We’re back in vogue,” he said. “It’s like the 1990s all over again.”
In fact, Cisco is once again a hot place to work in Silicon Valley, Chambers claimed.
“It would surprise you how many were recruiting from so-called top players” like Google, Apple, and Facebook.
That said, Cisco did decrease its Silicon Valley headcount over the last year.