Victor and Janie Tsao built Cisco-Linksys LLC into a networking products maker that’s on track to post $1 billion in sales this year.
Now the recently named leader of the Cisco Systems Inc. unit says there’s no reason why he can’t grow Linksys fivefold during the next five years, which would make it one of the biggest companies by sales in Orange County.
The reason: Demand is set to explode for equipment that wirelessly connects electronics at home, said J. Michael Pocock, former chief executive of Polaroid Corp. and recently named general manager of Cisco-Linksys.
“If you look at the size of that market that’s envisioned over the next five years,particularly with convergence,that is a reasonable goal, to get to the $5 billion mark,” Pocock said.
Convergence is a buzzword describing how computers, consumer electronics and phones work together.
Challenges loom for Linksys. To grow quickly, Linksys will have to become more of a factor in global markets, where entrenched competitors have big chunks of the market.
Linksys also will have to develop more mainstream products that appeal to non-techies.
|
|
Victor and Janie Tsao: stepping back from Linksys to focus on Chinese investments for Cisco |
That strategy was started by the Tsaos, who sold the company to Cisco in 2003 for about $500 million and now plan to find business ventures in China for Cisco, which posted $25 billion in sales last year.
Linksys makes networking devices that link computers and allow for wireless gaming and phone calls over an Internet connection. It also makes routers, storage devices and other gear for small businesses.
The company already is the top seller of home networking gear in North America. It will need to boost its sales to small businesses to hit Pocock’s targets.
Linksys will grow through internal expansion and acquisitions, according to Pocock. He said he sees opportunities to grow and pick up companies in Asia, Europe, Latin America and the Middle East.
Janie Tsao said Pocock’s experience gave the Tsaos confidence to leave Linksys and pursue their longtime plan to develop business in China.
The Tsaos took Linksys from operating out of a garage to $1 billion in sales in less than 20 years,adding about $500 million in revenue a year since they sold the company to Cisco.
Under Pocock’s leadership, the company can reach the “next level,” Janie Tsao said.
“When it comes to this point, Mike has a lot of the operational experience,” Tsao said. “It’s a different operation. It’s a different way to scrutinize the financials, to help the organization make the right decisions.”
After leaving General Electric Co., Pocock in 1980 helped set up Seiko Epson Inc.’s Epson America Inc. unit, which became a top seller of printers and computers during the 1980s.
In the 1990s, he was an executive at Xerox Corp., and later headed up corporate strategy for Compaq Computer Corp., now part of Hewlett-Packard Co.
Pocock, who joined Polaroid in 2003, helped the company diversify its photography business to electronics. The company became the world’s top seller of portable DVD players and developed digital music players and plasma TVs.
Linksys dominates the market in North America, but doesn’t do as well in other parts of the world. Top sellers of networking gear abroad include Taiwan-based D-Link Corp., which has its U.S. headquarters in Fountain Valley.
“Given where Linksys is today, we have done a good job,” Pocock said. “We can do better, as our product offering is getting broader and deeper.”
He said the company can grow by being “market driven” for every area of the world. That means making products appeal not just to techies, but to consumers for different geographic areas.
In Germany, he said, consumers want their products to have the quality of a Mercedes-Benz,not just a lot of flashy packaging.
“We can’t be U.S.-centric,” he said.
Janie Tsao said that if she had one regret during the past few years, it might be that Linksys went after the sluggish European market before Asia-Pacific.
Pocock said he sees opportunities in Europe. He said networking standards in Europe have been finalized more quickly than in the U.S., making it a ripe market for the convergence of computer, consumer electronics and telecommunications gear.
Linksys needs to make sure it has solid manufacturing and distribution partners around the globe so it can grow quickly, Pocock said. Also, he plans to make sure the company must have a consistent branding message on its Web site, in advertising and on packages.
Acquisitions are expected to pick up.
Last year Cisco paid about $60 million for Kiss Technology AS of Denmark. The company, which makes software and devices for networked DVD players and recorders, among other home entertainment gear, was folded into Linksys.
And earlier this year, Cisco invested in New Jersey’s Zensys Inc., the developer of Z-Wave, a wireless networking technology that lets users remotely control lights, security systems and other household electronics.
Late last year, Cisco said it planned to spend nearly $7 billion on Scientific-Atlanta Inc., a maker of cable TV set-top boxes and cable modems.
Although Scientific-Atlanta is a separate division under Cisco, Linksys’ home networking gear could be combined with the cable TV and broadband unit.
The company also wants to expand into home networking’s close cousin: the small-business sector.
Small-business owners already use Linksys’ routers and other networking gear to hook up a home or small office without the cost of a full Cisco system.
Linksys is looking to expand its Internet-phone based systems to small businesses through a program called Linksys One, which could launch later this year.
Janie Tsao said it was time to hand off the company.
“Last fall we started to really talk about this,” Tsao said. “We have some of the processes in place, and we feel this organization is ready.”
She said she was proud of how Linksys thrived as an independent company within Cisco, which previously focused on selling gear to big businesses. She said some critics thought Linksys, a consumer-focused company, would “disappear” in Cisco.
But the Tsaos proved them wrong.
“I really felt that was a very good experience,” she said.
Now, she and Victor Tsao, who are from a rural area of northern China, can put their time into fostering connections with China.
“For those people who work for us … and even some of our partners know that we have a passion,that’s where our roots are,” she said. “We always felt something could be done to bridge our cultures.”
