John Chambers has given us a consistent vision over the past couple years – transforming Cisco into the #1 IT company worldwide.
During the breakouts I started reflecting on this vision in a little more depth. The first obvious observation is that if our goal is to be the #1 IT company worldwide then we can’t be #1 yet.
So if we are not #1 who is? And how far away are we from that position? How will we know when we get there?
Turns out there actually is a Wikipedia entry dedicated to this question. Their criterion is annual revenue, which is a good start, but I don’t think greatest revenue equates to #1 IT company. In my mind the #1 IT company would be a leader in annual revenue, market cap, and number of employees. Market cap in particular would be the most compelling singe statistic to me.
So how do we (Cisco) rank among our IT peers in market cap?
As of August 2014 Cisco is the #41 largest market cap corporation in the S&P. That is #41 of all companies, not just IT companies.
This begs the question “Of the 40 companies with a larger market cap, which companies are IT companies?” As we have articulated all companies are IT companies now (Ford is an IT company that sells cars, Coke is an IT company that sells soda) – and that is very true. There are no companies large or small that can survive this market without a strategic vision enabled by technology. However, for the purposes of this article let’s just agree that IBM is an IT company and Exxon is not an IT company, OK?
So pulling out the Exxons, Proctor&Gambles and Pfizers of the world I get that we are currently the IT #10 company by market cap. This is based off of S&P data – so only US companies considered here. Here is the list:
OK – so how long reasonably would it take us to get from #10 to #1? Well, let’s say the Internet of Things is that vision of every tree and cow is an internet connected tree and cow and the growth engine for us to get to say ~15% revenue growth a year for the next 5 years . On top of that say we can grow total earnings a year by 20% and say we even get P/E multiple expansion from where it is now at 15 to 20 – the math comes to
So that gets us to $431B market cap. Note that projection is waaaaaay optimistic. Everything would have to go right and then some to get to those kinds of numbers. Consider that 5 years ago in August 2009 we were at $130B market cap and $36B in sales – so in the last 5 years we have grown market cap by donuts and sales by a total of 25%. To think we will grow sales 100% in the next 5 years when we only did 25% in the last five is definitely stretch thinking.
Well, even at $431B five years from now, that still 30% smaller than Apple is today. Could Apple decline significantly? Sure. The iPhone is getting older and who know if the iPhone phablets will be a big bust? So sure they could decline over the next 5 years.
How about Google, currently in the #2 position right now? $431B would be bigger than Google right now, but it is real hard to see how Google would decline over the next 5 years. In fact, 5 years from now there will be more ad spending on digital media than TV media. Could they lose advertising dollars to Facebook? Sure, but the point is someone will win – weather it is Apple vs Microsoft or Google vs Facebook. So the short answer is no, even in a best case scenario we will not be the #1 IT company in 5 years.
These aren’t the droids you are looking for. If you look at the list closely, I’d argue that the top ones on the list are all consumer companies (Apple, Google, Facebook), leaving less enterprise challengers in our path (IBM, Oracle, Cisco). So, if you take the vision is to be the #1 Enterprise IT company in the world (which actually I think is the vision JC has) then things get more possible.
Here is the list again with the enterprise focused companies called out in green
I think IBM and Oracle are well within our sites. There is no reason we can not have an Advanced Services arm like IBM and I don’t see what propels names like IBM, Oracle and HP forward over the next 5 years. We have Internet of Everything and growth in mobility. They have— old technology.
So yes, even at a more reasonable 5% annual revenue growth and 10% annual earnings growth with no P/E expansion, that math gets us to
So yes, if IBM and Oracle stagnate and we execute, in 3-4 years we will be a bigger market cap player than either of those.
Microsoft however is a different story. We would need the optimistic scenario to play out to overtake them. If they grow at expectations and we grow at others’ expectations of us then we will not surpass Microsoft in the next ten years.
So here’s to double digit revenue growth and 20% earnings growth! I personally am looking forward to the journey of becoming #1!
If you have made it through the article to this point then tweet me back (@nevilleaga) I am curious to see who you think is the #1 IT company right now and who we are going to take down when we achieve our vision.