The company narrowly beat Wall Street''s profit expectations in November for the 13th consecutive quarter, and after management predicted a 50 to 60 per cent revenue increase in the current fiscal year. Despite being a clear market leader in its segment, the recent price erosion of its stock is worrying the company management. It fears that this will pose a threat to it’s long-term expansion plans because it uses its stock as a currency to buy the technology and talent to diversify into promising new niches, such as optical networking and telecommunications software. Cisco''s buoyant share value also helped recruit and retain the brightest tech workers through the prospect of lucrative stock options that become less attractive when a company''s stock languishes. The company has spent, in the past three years, more than $23 billion, largely in stock, to snap up dozens of companies and their employees. The buying spree boosted the company''s payroll from 8,800 workers in September 1996 to just under 39,000 employees now. For the immediate future, Cisco plans to buy about 25 companies per year as part of an expansion that could double its payroll to about 80,000 employees during the next decade.

Cisco’s senior management is, however, confident that if the company takes care of the fundamentals, strong stock prices will follow. The company could well use the current depression in technology stocks to accelerate its acquisition pace.

While analysts are not overly worried about the Cisco stock price, which is still faring relatively better than other tech companies like Lucent and Nortel Networks, if the price continues to lag, the company will be hard-pressed to make blockbuster deals like in the past. Last year the company was involved in some mega deals like the $6.9 billion purchase of Cerent, which makes optical networking equipment, and the $5.7 billion takeover of ArrowPoint Communications, which makes switches that direct Web traffic. The company, which is likely to distribute a new round of employee stock options, is taking adequate steps to ensure that employees do not feel anxious about their options and are not tempted to switch jobs in the Silicon Valley''s highly competitive market for technology workers.