Jon Snyder, who helps run the computer network at Portland State University, knows he could save the Oregon school as much as US$75,000 by not shopping at Cisco Systems Inc for equipment he'll buy this year.
Hewlett-Packard Co, Foundry Networks Inc and Extreme Networks Inc charge less for similar products. Still, Snyder says he plans to spend US$100,000 to US$250,000 at Cisco, the biggest maker of networking gear, because he prefers the company's equipment and customer service.
"You get what you pay for," says Snyder. "One outage caused by a software bug that Cisco wouldn't have is worth the price difference."
Banking on that kind of brand loyalty, Cisco Chief Executive John Chambers has stuck with prices that are often 50 percent higher than what competitors charge. So, even as industrywide sales of network equipment fell to a four-year low last year, Cisco increased its gross margin in every quarter and boosted it to a company record 69.3 percent in the period ended Oct. 26.
And Chambers' strategy is still paying off. Later today, San Jose, California-based Cisco probably will say profit rose in its fiscal second quarter as sales dropped. A year earlier, the gross margin, or percentage of sales left after subtracting production costs, was 62 percent.
Cisco is expected to report profit of US$0.13 a share, excluding some expenses such as acquisition costs, up from 9 cents a year earlier, the average estimate in a Thomson First Call survey of analysts. Sales probably fell 1.7 percent to US$4.73 billion, according to First Call.
"They own the market and they can still afford to charge the premium for the nameplate," said Terrence Gerlich, who manages US$500 million at Freedom Capital Management LLC. Freedom held 423,090 Cisco shares as of Sept. 30.
Cisco had a 69 percent share of network-switch revenue in the third quarter, according to market researcher Dell'Oro Group.
Foundry's gross margin also rose every quarter last year, though fell short of Cisco's, ending last year at 54.7 percent.
Extreme's fell to 50.2 percent in its fiscal second quarter from 52.8 percent a year earlier, and the company's loss more than doubled to US$184 million for the year ended in June.
"Cisco still believes that price is still not the key issue in the marketplace," spokeswoman Abby Smith said.
Some customers disagree.
Last year, Bruce Arsenault of Connecticut's Naugatuck Valley Community College replaced Cisco equipment with 28 data switches from Hewlett-Packard. He says changing saved the school more than $80,000, or at least 40 percent over what Cisco would have charged.
As Hewlett-Packard and Dell Computer Corp expand into Cisco's markets and the sluggish US economy forces some customers to look for bargains, Chambers may have trouble.
"You're not going to be able to get the margins you had before," says Gerlich. "You're not going to get people to buy just because they're Cisco."
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to