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Cisco Systems, a profitable and steady-riding IT infrastructure provider for nearly 20 years, gained a world of prestige in the global business community on June 1 when it was named to join Dow Jones Industrial Average lineup of 30 publicly traded companies.
Cisco will replace long-embattled General Motors on the list beginning June 8; GM opted for Chapter 11 bankruptcy protection on June 1. At the same time, the Travelers Companies insurance conglomerate will replace struggling banker Citigroup on the list.
“A bankruptcy filing immediately disqualifies a stock, regardless of a company’s history or its role as a cultural icon,” Robert Thomson, managing editor of The Wall Street Journal and editor-in-chief for all of Dow Jones, wrote in the Journal.
Cisco will join fellow IT infrastructure companies IBM, Intel and Hewlett-Packard and telecommunications companies AT&T and Verizon Communications in the Dow Jones group.
Although being named to the elite group doesn’t automatically translate to more dollars in Cisco’s bank accounts-although Cisco’s stock price did improve by 6 percent to about $19.60 on June 1-it does provide the data networking giant with a virtual shot in the arm in terms of company morale and respect from the business community in general.
Nonmaterial benefits such as those are “priceless,” as MasterCard might say.
Cisco, like most other enterprises, has had to navigate uncharacteristically rough roads in this recessionary economy. The world’s biggest supplier of IT networking hardware and software has endured sales-performance slippage during the last six months, with its income falling 22 percent during the fiscal quarter that ended April 25. So the Dow Jones encouragement is a salve of sorts during a tough time.
“Cisco is honored to be included in the Dow Jones Industrial Average,” Terry Alberstein, Cisco’s senior director of corporate public relations, wrote in an e-mail. “We believe our inclusion in the Dow demonstrates not only Cisco’s role as a broad technology indicator but how remarkably the Internet and networking have transformed the way businesses and consumers connect, communicate and collaborate.”
Ciscos Rise Reflects Big Economic Picture
The announcement not only is a trophy for Cisco and an embarrassment for GM, but also makes a statement about U.S. business in general: It is yet another indicator of the slow-moving, decades-old changeover from a primarily physical-production economy to one that relies on invention, design, intellectual property, and advertising, marketing and sales.
Zeus Kerravala of The Yankee Group told eWEEK that “it’s a feather in Cisco’s cap, a sign of the times. GM is really the old guard, and our country is built on innovation, not manufacturing.”
Charles King, principal analyst at Pund-IT, told eWEEK that the June 1 announcement says a couple of important things about the IT-fueled U.S. economy.
“I remember at the outset of the dot-com boom, when some of the IT companies [IBM, Hewlett-Packard, Intel] had gained such stature and pushed their way on, and it was seen to be a ‘changing of the guard’ at that point,” King said. “This time, I think what we’re seeing is [a] fundamental shift away from traditional manufacturing and more toward companies that are leveraging technology for the sake of information. While this isn’t a new thing, it does say great things about Cisco’s health and longevity as an organization.”
Cisco is a company that rose to prominence along with many others during the dot-com boom, King said. “But they’ve got staying power, and this should be seen as a feather in the cap of [CEO] John Chambers and his company,” King said.
Changes in the Dow Jones list are rare. GM was added twice, first for about a year and a half in 1915 and then permanently in 1925. Only General Electric has been on the list longer; GE has been in the index since it began with 12 stocks in 1896.
The most recent change to the list was in September 2008, when Kraft Foods replaced AIG (American International Group).