NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, December 9, 2005

Many African governments were beginning to spend heavily on telecommunications networks, seeing them as a platform through which to connect communities and start to challenge poverty.

Two problems were how Cisco could penetrate so many countries, and the shortage of skills to support its technologies.

Networking company Cisco Systems expects to sustain annual growth of 10%-15% for the next few years as the volume of traffic carried on global networks surges as much as 500% a year.

Much of Cisco’s growth is expected to come from emerging markets, including Africa, where its business is growing 30% a year.

“That’s where we are making our investments for growth,” CEO John Chambers told analysts in Santa Clara on Tuesday.

Twelve percent of all new employees are being hired in emerging markets, and its investment focus on the region will continue for the next several quarters.

So far the 129 countries classed as emerging markets account for just 10% of the Nasdaq-listed company’s revenue, which hit $24,8bn in financial 2005.

Chambers believes emerging markets could generate up to 40% of Cisco’s potential growth in the coming years.

Cisco’s vice-president for emerging markets, Paul Mountford, thinks Chambers is under-estimating the potential, and predicts growth of up to 47% a year in his territories.

“There is an absolutely huge opportunity,” he said.

The 129 countries cover 37% of the world’s population, yet only 1% of the people have broadband internet access.

“It’s all about land-grab. That’s why these countries are so important to us. First-mover advantage is critical in these markets, and there’s not really a comprehensive first mover in any of the top 20 countries which generate 80% of the business volumes today,” he said.

SA is among the top 20 performers of his 129 countries.

Many African governments were beginning to spend heavily on telecommunications networks, seeing them as a platform through which to connect communities and start to challenge poverty, he said.

Two problems were how Cisco could penetrate so many countries, and the shortage of skills to support its technologies.

Both those issues would be addressed by working through local partners, which include Johannesburg-listed Dimension Data and Datatec.

Cisco is the world’s largest supplier of telecoms technologies, but as it muscles into new areas — such as video telephony and cordless handsets — it claims only a 26% market share for the products and services it offers.

That gave it plenty of opportunity to expand, said Chambers.

“Ten percent to 15% growth a year can be sustained by the investments the company is making now,” he said.

Driving the growth will be a massive increase in the volume of data and images sent over the fixed-line and cellular networks.

“We have seen network loads grow at 100% a year and I believe for the next few years it will grow at 300%-500% a year,” Chambers said. “In the future there are going to be 10-billion to 20-billion devices attached to the internet — as many devices as there are people in the world, each driving the need for connectivity.”

It took as much bandwidth to carry a 30-minute video as it took to deliver e-mail for 18 months, Chambers said.

He also expects all television programmes to be broadcast over the internet in the future, driving further demand for networking technologies.

Over the past two financial years Cisco’s revenue has grown 31%, operating profit has soared 45% and headline earnings a share 56%.

Latest figures for the first quarter of financial 2006 saw net sales rise 9,7% to $6,5bn, while net income touched $1,3bn.