24916_04_2002 © 2002, cisco systems, inc. all rights reserved. the view from cisco ammar hanafi vp,...

24916_04_2002 © 2002, Cisco Systems, Inc. All rights reserved.

The View From CiscoAmmar Hanafi

VP, Strategy & Business Development

© 2002, Cisco Systems, Inc. All rights reserved. 34916_04_2002

It’s The End of The World As We Know It…



A Rapid Decrease in Venture Investing

$6.8 $9.8 $12.8$17.6

$47.2

$91.6

$32.1

2780

5779

4400

24592149

1888

1313

$0

$25

$50

$75

$100

1995 1996 1997 1998 1999 2000 2001

0

1,000

2,000

3,000

4,000

5,000

6,000

Amount Invested ($B)

Number of Deals

AmountInvested

($B)

Numberof Deals

Source: VentureOne


Source: Morgan Stanley Technology Research, March 2002

Notes:Technology Spending defined as IT spending share of total nominal business equipment spending



…..Driven By Technology Spending

38%

40%

42%

44%

46%

48%

50%

19961996 19971997 19981998 19991999 20002000 20012001


0%

5%

10%

15%

20%

25%

30%

35%

'85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02E'03E'04E'05E

The Service Provider Spending Decline Is Even Steeper

Source: Goldman SachsSource: Goldman Sachs

33%33%

25%25%

22%22%21%21%

18%18%

14%14%14%14%

15%15%15%15%15%15%

14%14%

15%15%

16%16%

20%20% 20%20%19%19%19%19%

29%29%

15%15%15%15%15%15%

1985-20001985-2000 15%15%

Historical Averageof Capex /Revenue (%)

Historical Averageof Capex /Revenue (%)

© 2002, Cisco Systems, Inc. All rights reserved. 74916_04_2002Source: Goldman SachsSource: Goldman Sachs

…Especially By Segment

(In Billions)(In Billions)

$29.4 $34.0$41.2 $38.1

$28.3 $30.8 $33.5 $36.3

$16.0

$24.4$21.8

$17.0$17.6

$18.9$20.8

$9.2

$11.5

$19.6

$21.3

$21.0$20.9

$19.7$18.6

$23.4

$0

$20

$40

$60

$80

$100

$120

1998 1999 2000 2001 2002 2003 2004 2005

ILECs IXCS CLECs Broadband Wireless

$5.2$3.8

$3.9$1.4

$4.8$1.5

$8.4$2.6

$18.0

$13.3

$3.6$1.4

$3.2$1.4$1.8

$1.3

$57.6$57.6

$79.9$79.9

$108.5$108.5

$98.3$98.3

$71.2$71.2 $73.8$73.8$77.3$77.3

$81.9$81.9


Investor Exits Dramatically Impacted: Liquidity Shifted to M&A in 2001

0% 20% 40% 60% 80% 100%

1995

1996

1997

1998

1999

2000

2001

IPO M&A

Source: VentureOneSource: VentureOne


$2.7$4.5$5.3$7.2

$11.6

$20.3$23.7

$45.5

$15.7

$8.7

$13.2

$5.4$4.2

69

81

939898

115108

122

8479

86

53

70

$0

$10

$20

$30

$40

$50

4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q010

25

50

75

100

Amount Paid ($B) Number of Transactions

…But This Doesn’t Tell the Whole Story

AmountPaid ($B)

AmountPaid ($B)

Number ofTransaction

s

Number ofTransaction

s

Source: VentureOneSource: VentureOne




But I Feel Fine !But I Feel Fine !

© 2002, Cisco Systems, Inc. All rights reserved. 114916_04_2002Source: Morgan Stanley Internet Research, December 2001Source: Morgan Stanley Internet Research, December 2001

Internet Penetration Lags Other Communications Technologies

Higher Penetration Lower Penetration

RegionPopulation

(MM) Telephone Cable PCMobile Phone Internet

Non-Japan AsiaNon-Japan Asia 2,8822,882 6%6% 20%20% 1%1% 2%2% 1%1%

EuropeEurope 630630 40 40 2424 1717 1616 1414

Latin AmericaLatin America 414414 13 13 1313 44 55 33

North AmericaNorth America 307307 6666 6969 4444 2424 3333

JapanJapan 127127 5050 2929 2424 3737 2323

Rest of WorldRest of World 1,5831,583 99 2121 66 33 22

Weighted AverageWeighted Average 5,9435,943 15%15% 23%23% 7%7% 6%6% 5%5%






Technology SpendingAs a % of U.S. Business Capital Spending

38%

40%

42%

44%

46%

48%

50%

19961996 19971997 19981998 19991999 20002000 20012001


Technology SpendingAs a % of U.S. Business Capital Spending


Technology Spending defined as IT spending share of total nominal business equipment spending


Technology Spending defined as IT spending share of total nominal business equipment spending

Jan 1980PC Introduction: 28%

Jan 1980PC Introduction: 28%

Jun 1995Commercial Internet: 42%

Jun 1995Commercial Internet: 42%

Dec 2000: 50%Dec 2000: 50%


CIOs Are Spending Money (9/02 Priorities)

Source: Goldman Sachs IT Survey, 9/02.Source: Goldman Sachs IT Survey, 9/02.

1. Information Security

2. Cost Cutting

3. Application Integration

4. Disaster recovery/business continuance

5. New software application deployment/development

6. System and storage consolidation


VC Market Starting to Stabilize

8.80 9.20

17.40

20.8020.10

18.60

15.90

9.20

7.80

6.00 6.20

4.90 4.50

888 901

1227

14171374

1181

1041

716666

606 614

476 497

0.00

5.00

10.00

15.00

20.00

25.00

2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02

Bill

ion

s o

f $

0

200

400

600

800

1000

1200

1400

1600

Nu

mb

er

of

De

als

Amount Invested Number of dealsSource: Venture One


So Where Do We Go So Where Do We Go From Here?From Here?

So Where Do We Go So Where Do We Go From Here?From Here?


Three Sources Of Technology Spending

• Consumers

• Enterprises

• Service Providers

Large Enterprise Leads The Market In Technology Adoption


• Mainframes• Lack of

standards• Custom

software

• Mainframes• Lack of

standards• Custom

software

• PCs• Mini-computers• Departmental

buyers and solutions

• PCs• Mini-computers• Departmental

buyers and solutions

• LANs• E-Mail• Packages• Standards

• LANs• E-Mail• Packages• Standards

• Internet• Re-centralisation

of buying• Replenishment

of infrastructure

• Internet• Re-centralisation

of buying• Replenishment

of infrastructure

• Mobile internet• Supply chain• CRM• Extranets• Convergent Tech

• Mobile internet• Supply chain• CRM• Extranets• Convergent Tech

Enterprise Technology Spending Cycles

DominantThemes

DominantThemes

Phase IAutomating

Basic Processes

Phase IAutomating

Basic Processes

Phase IIIT Spend

Shifts to End User and

Departments

Phase IIIT Spend

Shifts to End User and

Departments

Phase VIExtendedEnterprise

Phase VIExtendedEnterprise

Phase IIIMaking IT

Productive

Phase IIIMaking IT

Productive

Phase VPent up Demand on Internet

Phase VPent up Demand on Internet

Phase IVReplacement Acceleration

Millennium

Phase IVReplacement Acceleration

Millennium

8080 8585 9090 9595 0000 0505

Source: Lehman Brothers Research

TechnologiesTechnologies


The Impact of The Extended Enterprise:Network Security Circa 1995

Remote Remote SiteSite

Remote Remote SiteSite

Leased Line

Leased Line

PSTNPSTN

PSTNPSTN

FrameRelayX.25

FrameRelayX.25


The Impact of the Extended Enterprise: Network Security Circa 2001

PartnerPartnerSiteSite

PartnerPartnerSiteSiteRemote SiteRemote SiteRemote SiteRemote Site

InternetInternet

Internet-Based Extranet (VPN)Internet-Based Extranet (VPN)

Internet-Based Intranet (VPN)Internet-Based Intranet (VPN)

PSTNPSTN

Service ProviderService Provider


Computing/Data Networking Technologies Are The Foundation

TDM/Circuit InfrastructureTDM/Circuit Infrastructure Packet-Based InfrastructurePacket-Based Infrastructure

L2 Dx Services, I.e. ATM, FrameL2 Dx Services, I.e. ATM, Frame IP VPNIP VPN

Key and Dx PBX SystemsKey and Dx PBX Systems IP TelephonyIP Telephony

Leased Line ServicesLeased Line Services Metro Ethernet ServicesMetro Ethernet Services

Narrowband Consumer ServicesNarrowband Consumer Services Broadband—Ethernet, Wireless,Cable, xDSL, PONBroadband—Ethernet, Wireless,Cable, xDSL, PON

Enterprise Storage Arrays Enterprise Storage Arrays Networked StorageNetworked Storage

Local Servers Local Servers Distributed ComputingDistributed Computing


The Cisco Opportunity:Enterprise Networking Leadership

80% of CIOs indicated that competitors were “very unlikely” (57%) or “somewhat unlikely” (23%) to displace their current vendor of choice80% of CIOs indicated that competitors were “very unlikely” (57%) or “somewhat unlikely” (23%) to displace their current vendor of choice

Source: Morgan Stanley CIO Survey, March 2002Source: Morgan Stanley CIO Survey, March 2002

3Com 1%

Dell 3%

Compaq 4%

IBM 4%

Nortel 8%

3Com 1%

Dell 3%

Compaq 4%

IBM 4%

Nortel 8%

Cisco77%

Cisco77%

Other 3%

Other 3%


The Cisco Opportunity:Service Provider Transition

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01

67.4%67.4%75.7%75.7%

84.5%84.5%

19.0%19.0%18.5%18.5%18.8%18.8%17.2%17.2%16.7%16.7%15.9%15.9%15.8%15.8%

54.9%54.9%56.5%56.5%

45.2%45.2%41.5%41.5%

Data Services Account for 19% of SP RevenuesBut Are 85% of Revenue Growth

Data Services Account for 19% of SP RevenuesBut Are 85% of Revenue Growth

Source: UBS WarburgSource: UBS Warburg


Network of the Future

24916_04_2002 © 2002, cisco systems, inc. all rights reserved. the view from cisco ammar hanafi vp,...

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technology spending

cisco systems

ventureone slide

steeper source

b number of deals source

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internet penetration

goldman sachs