By Ted Hart

Cisco Systems (Ticker: CSCO) was once a tech darling. During the Tech Bubble of the late 1990s, Cisco quickly climbed to become the most valuable company in the world. As the market leader in internet routers and network switches, investors believed that the company “that powered the internet” had growth as far as the eye could see. Shortly after the millennium, and as the economy went into a recession, the growth of the internet faltered and left Cisco’s growth prospects dim. Since then, the company has increased sales at about 5% per year. However, during the same period, the stock has languished due to its lackluster growth relative to its technology peers. All the while, Cisco kept one of the cleanest balance sheets in the industry and rewarded shareholders with above-average dividend growth. And next, hybrid work (a mix of working from home and in the office) landed right in their laps! Cisco may not regain the crown as the world’s most valuable company, but their prospects are stronger than they have been in over twenty years.

In its legacy hardware business, Cisco manufactures switches that are utilized to create a digital network, wireless internet routers, network security devices and communication devices such as phones and web cameras. As devices became more efficient, Cisco (and their competitors) naturally adapted with the times and dipped into the software business (think about the difference in operating systems between the Motorola “brick” phone of the early 1990s and your smartphone today). Software now represents 53% of sales. More important, Cisco is increasingly selling this as a subscription service rather than a one-off purchase. Whether it’s hardware or software, CEO Chuck Robbins has stated that if a product “can be delivered as service, it will be!”. The successful playbook for this business transition has been laid out by Microsoft (MSFT) and Adobe (ADBE), and both have stock prices that are up fivefold over the past five years.

Covid-19 has accelerated many trends, and the shift towards hybrid work has been no exception. Unexpectedly, businesses will be forced to adapt to a more digital age as Zoom meetings and virtual conferences become more of the norm. Enter Cisco who is ready to deliver the leading cameras and devices to their over one million customers. They also provide the artificial intelligence software that can detect body language during a meeting, offering businesses an in-person like experience. Furthermore, with cybercrime up over 600% during the pandemic, cyber security is as important as ever, and fortunately for Cisco, the company already had a strong grasp on protecting against cyber criminals.

Many companies have faced significant headwinds during the pandemic, and some went away entirely. Cisco, however, has not worn out its welcome with investors. The company has proven that it is going to stay around for a long, long time, both inside and outside of your home and office.