The 'evangelist' is back from his internet hell

John Chambers' company approaches its 20th birthday in bullish mood after its own dot-com disaster. Clayton Hirst asks if the confidence is justified

A group of 150 businessmen and women will assemble at Hampton Court Palace next week to hear John Chambers speak. Via satellite link from San Francisco, the chief executive of Cisco Systems will preach the virtues of technology to the converted. The sermon will mark the start of six months of events celebrating the 20th birthday of one of Silicon Valley's most influential companies. Perhaps more significantly, it will also herald the return of the man nicknamed "the evangelist".

A group of 150 businessmen and women will assemble at Hampton Court Palace next week to hear John Chambers speak. Via satellite link from San Francisco, the chief executive of Cisco Systems will preach the virtues of technology to the converted. The sermon will mark the start of six months of events celebrating the 20th birthday of one of Silicon Valley's most influential companies. Perhaps more significantly, it will also herald the return of the man nicknamed "the evangelist".

During the technology boom, Mr Chambers preached, to anyone who would listen, that the internet would change the world. His sermons developed a solid following and Mr Chambers even held private sessions with Tony Blair, George Bush and other world leaders.

Cisco, which makes the equipment that directs internet traffic, was nothing short of "the world's most influential company," Mr Chambers said at the time. And for a few weeks in early 2000, Cisco overtook General Electric to become the world's most valuable company. It was even tipped to become the first trillion-dollar corporation.

Then the market collapsed.

By the end of 2000, Cisco had a huge overhang of stock as orders dried up. Months later, it plunged into the red and was forced to lay off 8,500 employees. Mr Chambers assumed a low profile.

Now, nearly three years later, he is preparing to raise his head back above the parapet. Cisco reported a 23 per cent jump in third-quarter net profits to $1.2bn (£683m) last week and announced plans to hire 1,000 people. Today, it is the third-largest company trading on America's Nasdaq exchange after Microsoft and Intel, with a market value of nearly $150bn, and is "uniquely positioned ... to gain momentum on a global basis", Mr Chambers said.

Wall Street is again starting to read his body language to gauge the health of the technology market. Gregory Teets, an analyst at US stockbroker AG Edwards, notes: "We do not sense that Mr Chambers is jumping up and down with enthusiasm, but on both internal and external factors, Mr Chambers said he was 'more optimistic'." AG Edwards is recommending that its clients should buy Cisco shares.

Is this optimism justified? Corporate spending in the IT market is increasing. According to Goldman Sachs's latest survey of IT managers at Fortune 1,000 companies, some 16 per cent expect a double-digit rise in capital spending on technology. This compares with 11 per cent in February.

Cisco executives also have a spring in their step. "There is a mood change in the industry. Customers are prepared to start projects where previously they said 'no'," says Nick Watson, the commercial director of Cisco UK. "But we never lost faith in what we were doing because we always believed that the internet would change the way we worked for ever."

During the dark days of the technology crash, Cisco kept plugging away at the new technologies that it thought would one day take off. One of these is "voiceover IP", which offers the ability to make telephone and video calls over the internet. "Abbey National is a good example," says Mr Watson. "It is replacing its existing infrastructure with telephony over the internet across 700 branches and 66 offices."

No one doubts Cisco's dominance in the market supplying equipment to large companies like this. "Cisco has more than 50 per cent market share for most of its products in the enterprise sector. If it is below 50 per cent then Cisco classes the market as 'emerging'," says Neil Ricard, an analyst at technology research group Gartner.

It is, however, in the "emerging markets" that Cisco could find the going tough. The biggest is in supplying equipment to telecoms companies and internet service providers. And here, its attempts to dominate the market are being headed off on two fronts.

The established suppliers - Alcatel, Nortel, Lucent and Siemens - were hit hard during the downturn but are now beginning to recapture lost ground. "Cisco is struggling against some of these operators," says Mr Ricard. "The competition is still well entrenched."

It is also facing competition from younger companies. Its biggest rival is the US-based Juniper Networks. Peter Crowcombe, that company's head of corporate marketing, says: "We continue to innovate at a faster pace than Cisco. They are spreading their bets more broadly than we are. They are becoming a generalist. This gives us an opportunity to provide a faster response to market requirements."

Cisco is also facing a challenge from emerging economic markets, and especially China.

The company's biggest challenge could come from Huawei, a six-year-old Chinese firm that employs 22,000 people. Huawei sells internet routers that rival Cisco products but retail at around half the price. The threat of Huawei was initially dismissed by US companies because in its early days it focused on serving its domestic customers, which include China Telecom, China Mobile and China Netcom. But in the past few months, Huawei has established a number of small bases overseas, including a European head office in Basingstoke. This, says a source who knows the company, is the beginning of a drive to develop a customer base in the West.

"This is a potentially serious threat," says Gartner's Mr Ricard.

However, such concerns will do little to dampen the growing optimism of Cisco employees with the 20th birthday celebrations looming.

Asked if Cisco could still become the world's first trillion-dollar company, Mr Watson sticks to the party line: "I wouldn't wish to speculate. It would be impossible to predict." But after a short pause, he adds: "I did say that we were an optimistic company."