Cisco Systems, Inc.: Acquisition Integration for Manufacturing
Nicole Tempest and Christian G. Kasper
iDavid Keller, vice president of manufacturing, new product introduction, and technology at Cisco Systems, Inc. (Cisco), hung up the phone and sat back to think about the challenges that lay ahead. He had just spent the last hourtalking with Gary Wilder, director of manu¬facturing operations, and Dick Swee, vice president of
-engineering, at Summa Four Inc. (Summa Four)—a systems company which developed and manufactured programmable switches used in the development of tele¬phony applications. Cisco had announced in July 1998
.that it had reached an agreement to acquire publicly held
- Summa Four for $116 million instock. The conversation :had been about the major effort that lay ahead to inte¬grate the two companies' manufacturing organizations. , While the deal was not expected to officially close until .November 1998, Keller had called Wilder and Swee to "give them an overview of how Cisco managed these : types of integration projects so that they could begin to 'prepare the Summa Four organization.
Kellerhad reviewed the due diligence report on Summa (Four written by a team from his department and knew that
the integration process would be complex. While Cisco I had made 25 acquisitions prior to the Summa Four acqui¬sition, most had been of Silicon Valley-based software
or preproduction hardware companies which had small HE any) manufacturing organizations. The Summa Four ..acquisition had thepotential to be different. Summa Four ;:was a 22-year-old hardware company with $42 million in Irevenues, over 200 employees, one manufacturing plant docated in Manchester, New Hampshire, and a full line I of products being shipped. Summa Four represented one |of Cisco's largest acquisitions to date in terms of current Irevenues and employees.
- Keller was concerned about just how difficult IBacquisition integration process would be from a manufacturing standpoint. How would they treat Summa Four's legacy and next generation products? Where would they be manufactured? How would Cisco deal with Summa Four's suppliers? Did it make sense to keep the Manchester plant operating? If so, for how long? What risks did Cisco face during the integration process and what could be done to help mitigatethose risks?
Cisco Systems, founded in 1984 by Leonard Bosack and Sandy Lerner—a husband-and-wife team of computer specialists at Stanford University—grew out of a project to tie together disparate computer networks on campus. Bosack and Lerner developed the first "multiprotocol" router—a specialized microcomputer that sat between two or more networks (even those with differentoper¬ating systems) and allowed those networks to "talk" to each other by deciphering, translating, and funneling data between them. As Bosack explained back then: "We network networks.'" Cisco's technology opened up the potential for linking all of the world's disparate compu¬ter networks together in much the same way as different telephone networks were linked around the world. Tech¬nologypioneered by Cisco provided the functionality for the World Wide Web.
As the global Internet and corporate Intranets grew in importance, so too did Cisco. With an early foothold in this rapidly growing industry, Cisco quickly became the leader in the data networking equipment market— the "plumbing" of the Internet. By 1998, most of the large-scale routers that powered the Internet were made by Cisco.While routers and switches continued to be Cisco's core products, the company's product line had expanded to include a broad range of other networking solutions, including website management tools, dial-up and other access solutions, Internet appliances, and net¬work management software. (See Exhibit 1 for a list of Cisco's product categories.) Cisco's broad product line enabled it to offer...