Analysts: Buys must continue at Cisco.(Cisco Systems Inc.)(Brief Article)(Statistical Data Included)

Byline: Sarah Cohen

Networking equipment giant Cisco Systems Inc. can't afford to stand still.

After 73 acquisitions over eight years, buying technology expertise and market share has become not just its modus operandi but a corporate way of life. The strategy worked as sales grew to $22 billion in the year ending July 28, 2001 from $649 million in fiscal 1993.

But analysts say Cisco needs to continue rolling out technologies, gaining engineers and seeking new marketplaces in a key tech arena fraught with problems -- telecom equipment carriers.

Cisco's most likely targets: troubled telecom equipment providers such as Nortel Networks Corp. of Brampton, Ontario, Lucent Technologies Inc. of Murray Hill, N.J. or Alcatel SA of Paris. "If Cisco doesn't make a move to acquire a large chunk of the carrier market," says Charles Pluckhahn, head of telecommunications research for Little Rock, Ark., investment bank Stephens Inc., "Cisco will be lucky to grow at 15% per year."

This may seem dicey given the ongoing telecom sector shakeout. Cisco certainly thinks so. CEO John Chambers recently noted that sales to carriers had dropped off amid the ongoing shakeout in the sector. Over a nine-month period ending in July, sales related to enterprise- and office place-networking, which had equaled sales to carriers, had since grown to three times the size of the carrier sales.

Analysts, however, believe Cisco is being myopic. "Over time, an increased amount of functionality will migrate from the enterprise to the carrier, as carriers outsource networking services," said Robert Abbe, a managing director for mergers and acquisitions research firm Broadview International llc of Fort Lee, N.J. Cisco instead has focused on office networking, lagging in optical equipment for telephone or cable carrier networking -- where the market seems to be heading.