(Spellings?) Janina Bachhaus, Bastian Sagild, George Staruch, Dave Moreno, Samantha Zildjian

Issues

• VCO/Series 80 & VCO/Series 20 are becoming outdated and will soon be obsolete

• VCO/Series 4K has ramped up faster than expected and Manchester facility may lack capacity to produce

• If phase out of Manchester plant risks losing valuable employees

Solution

• Migrate customers from VCO 80 & 20 series to VCO/4K

• Outsource both 4K and Alpha with final tests and assembly at California facility

• Transform Manchester facility into R&D and prototyping hub

Cisco Background

• Founded in 1984 – Leonard Bosack and Sandy Lerner• 1990— became public• 1998— #1 and #2 in almost all markets they

competed. • Markets ______________• Manufacturing Strategy: heavily dependent on

outsourcing with limited investments in brick & mortar for scalability – 25% of Cisco’s revenue and 50% of its unit volume

manufactured and shipped out of external factories

Cisco Core Competencies

• Have a broad product line, offering its customers “end-to-end” solutions

• Strategy: using acquisitions & partnerships to gain access to new technologies and intellectual resources– 30% of revenues from acquisition & development;

“A &D”

Opportunity

• Degradation of telecommunications industry causing service providers to enter into a fierce competitive race to develop & deliver enhanced services

• Acquisition of Summa Four for $116 million and 210 employees

The Acquisition Process

Minimize Expedite

Summa Four Background

• Service Provider• Leading provider of open programmable digital

switching systems, sold primarily to telecommunications service providers worldwide

• Based in Manchester, NH – a fairly remote location

• Strong culture accustomed to “informal processes” & high energy atmosphere of a small company

Summa Four Current OfferingsVC

O/S

erie

s 80

VCO

/Ser

ies

20

Same functionality as VCO/Series 80, but offers smaller footprint and rack-mountable design which makes it suitable for turnkey integration and other application systems

2,048 timeslots

Not Fully-NEBS Compliant

VCO

/4K World’s highest

density open-programmable switch

4,096 timeslots

Fully-NEBS Compliant

High-density open programmable switch used for application development, highly distributed implementations, and scalable transport deployments in both wired and wireless networks

2,048 timeslots

Fully-NEBS Compliant

• Industry’s first standards-based open programmable switch• Set to launch in 1 year• Key reason why acquisition is attractive • Opportunity to be market leader• Has potential to make other switches

obsolete

Project Alpha

Does Summa Four Fit?

Integration Steps

Phasing Out 80 &20VCO/Series 80

• Appeals to smaller companies that can save cost and rely on the flexibility from lack of standards

• Slow phase out in anticipation of Alpha• Keep for a period of 12 months for small cost sensitive firms• Offer extensive training and PR for Alpha at these locations to

encourage upgrading

VCO/Series 20

• Rapid phase out of the outdated model• 6 month period• Offer a rebate program to encourage tradeins and increase

loyalty through transition

80 & 20 Production Plans

• Leave Series 20 & Series 80 at Manchester plant until their eventual phase out

• Sell off excess machinery uneccessary for prototyping for $____

• Sanmia currently contracted to do sub-assembly on the 4K

• Sanmia to also handle the production, fulfillment and after-sale support of Summa Four’s mature products.

Manchester Plant Allocation

• The plant is clean, orderly, and efficient—much better than many other plants Cisco acquires

• By keeping the Manchester plant, eliminate risk of losing top employees– 65 development engineers & 23 manufacturing employees– The engineers and patents are effectively what Cisco is paying

for• Streamline Plant and focus on Project Alpha

– Mitigate risk of losing engineers through improved compensation and continued autonomy

– Encourage & expedite Project Alpha (6 months)– Build foundations for an extensive East coast presence

• Requires investment into the Autotest system

Outsourcing 4K

• VCO/Series 4K is Summa’s newest, most advanced product which has ramped up faster than expected

• If popular in the market, Manchester facility lacks the capacity to produce – and Cisco would have to invest in both machinery and employees

• By outsourcing, Cisco avoids plant investments

• Outsource Alpha to Cisco’s main CA facility• 3 CA plants have excess capacity and Auto test infrastructure in

place• Summa Four has moved more and more toward outsourcing with

each product generation, which fits with Cisco’s business model. • They currently outsource most of piece part assembly Eventual

outsourcing of board level testing

Outsourcing Alpha

RisksSeries 4K•Can not predict product life span•Demand uncertainty affects production

capacity needed

Supplier Risk

•250 suppliers – 85 new to Cisco •200 parts sole sourced •Pricing & continuity of supply risk

Shut down of Manchester plant•Could mean losing valuable employees

Risk MitigationOutsource 4K•Capacity to ramp up•Avoid investment in physical plant

expansion if life span proves shorter than anticipated

Reduce Supplier Risk•Identify opportunity to consolidate parts &

vendors for 4K & Alpha

Maintain Manchester facility•Retain employees•Keep company culture that has proved

effective•Transform into R&D hub

NPV

Plan Summary

• Outsource 4K & Alpha to CA facilities• Summa Four to leverage Cisco’s powerful sales

organization and distribution channels for 4K & Alpha– 2-5 X the ramp up for volume sales– Convert to Cisco’s forecasting method within 30 days– Determine product life spans

• Leave 20 & 80 Series at Manchester plant for eventual phase out

• Continued R&D and prototyping efforts in NH

Questions?