Cisco chief charts networked path to prosperity

By ADAM GIFFORD

The head of networking technology giant Cisco Systems says countries such as New Zealand can increase productivity by as much as 5 per cent a year by harnessing internet technologies properly.

John Chambers, speaking to 900 business people in Sydney last week, said spending on information technology alone did not lead to productivity increases. Between 1965 and 1995, IT investment in the United States grew from 5 per cent of capital spending to more than 40 per cent, but productivity remained flat.

"It was only when you begin to do the networked, web-based applications that you see the productivity increase."

Chambers said the way New Zealand and Australia had continued to prosper despite the economic downturn was heartening.

"If we watch the growth in Australia and New Zealand in terms of investment in web-based applications, we would be disappointed if growth was not in double digits in the next three or four quarters."

Chambers said Cisco's success was built on its ability to see disruption and change its products or business practices to meet the challenge.

"We are on our fourth generation of competitors in 12 years."

Three years ago, Cisco's market capitalisation of about US$175 billion was slightly less than the combined value of its competitors, Lucent and Nortel. The market now values Cisco at US$105 billion, compared with US$43 billion for Nortel, Lucent and a cluster of new competitors such as Foundry, Extreme and Jupiter. In the past nine months Cisco grew 2 per cent and increased profits 14 per cent, while its peers shrank 38 per cent.

Chambers said companies which increased productivity could retain more cash.

"If we take one lesson from the new economy, it is how do you make profits and not make cash - that should have been a warning to us all."

He urged Government, business, communities and regulators to work together on rolling out broadband infrastructure, as it had become clear that business on its own could not do the job.