Cisco Systems

From networking computers to world market leader

Even if it's hard to imagine today, we're still at the beginning of a new internet age. It's not really a fair comparison, but an ordinary smartphone has more computing power than the Apollo Guidance Computer that was needed for the moon landing. Crazy, right?

The connection of the world's population is advancing by leaps and bounds, yet we're only at a little over 50%. So there's still a lot coming our way in the years ahead - much to the benefit of the IT pro Cisco Systems. The telecommunications company provides the technologies and software for better and more energy-efficient networking. With state-of-the-art routers and switches, it became the world market leader in no time.

The history and business model of Cisco Systems Inc.

In 1984, the married couple Leonard Bosack and Sandy Lerner were teaching at 2 different departments of Stanford University. Since they were constantly physically separated and were tired of carrying storage media back and forth, they looked for a way to network their computers. After a few attempts, they developed a router that connected not just the two of them, but the entire university. Without further ado, they founded the IT company Cisco Systems. By the way, the name is made up of the last two syllables of San Francisco - the blue lines above it are meant to represent the Golden Gate Bridge.

Thanks to the PC boom of the late '80s, business was booming. The new CEO John P. Morgridges took Cisco Systems public in March 1990. It quickly became Wall Street's darling. During the dot-com bubble, Cisco was briefly the most valuable company in the world at around 555 billion US dollars. Even after the bubble, there was still enough money in the coffers to open up further business areas. Today, Cisco has bought more than 160 companies and is very broadly positioned in data, voice and video communication, routers and switches, as well as artificial intelligence and cloud software.

What else is in store for Cisco in the future?

As I touched on above, I assume we're only at the beginning of a new internet age. Given that, Cisco Systems' business will keep running very well for a long time. Despite constant acquisitions, the IT giant still has enough money in its coffers to plan the next big thing. The Internet of Things, smart power grids or multi-cloud computing have already been researched, but it will take a while before end consumers can really use them. So there's still enormous growth potential for Cisco here.

What about the dividend?

Shareholders received their first profit distribution in 2011. Since then, the dividend has been raised every year. Cisco Systems isn't a classic dividend stock, but with a current dividend yield of 2.9 percent, it's very well positioned for now. The payout ratio is around 57%. So there's still enough profit left over to drive the company's own growth.

Conclusion:
Cisco Systems has long since stopped being just a router seller. Its many different business areas are doing very well and will become much more important in the future. A lot of opportunities and growth potential lie dormant here for Cisco. Computer scientists who work with computers, routers or the internet in general should definitely add this stock to their portfolio. But even for investors without technical know-how, an investment here can pay off in the long run.