John Chambers, CEO of Cisco Systems Inc., talked about Cisco"s 20th anniversary during the WorldWide Analyst Conference in San Jose this week. The actual anniversary of Cisco"s founding in 1984 by two Stanford University scientists is Friday. Since that time, Cisco has grown from a company whose first income came from the sale of a single router into a US$22 billion global networking equipment powerhouse with 35,000 employees in 259 cities around the world.

Chambers joined Cisco in 1991 as senior vice president of worldwide sales and operations and was named CEO in 1995. He spoke in his San Jose office with Computerworld"s Matt Hamblen about Cisco"s direction, including initiatives in data center technology, as well as lessons learned from the IT downturn and the importance for large corporations to give back to the community.

This is part 1 of a two-part interview.

At 20 years since its founding, you said Cisco had reached adulthood. What is the next step for this young adult? We"ve been pretty successful over the last 20 years. But this is usually a point in life where people can go one way or another. Our goal clearly is to focus on how do we take our company to the next level. We tend to make statements not for sound bites, but because we intend to do them. We set aggressive goals. We are trying to build a company that is not only built to last, but to lead.

Leadership means holding the No. 1 position in the categories that you go into. We have dreams and aspirations of being perhaps one of the most successful companies but also the best at giving back, and these are not mutually exclusive. I would argue you want an environment that is good at giving, whether it"s in terms of the country where you do business or around the world, your attitude towards customers or your attitude towards your employees.

Where do you get that missionary attitude? My parents are both doctors, and I think you learn early on in life to set your goals high. Education was an equalizer in their minds. Giving back is equally as important. First, it"s the right thing to do, and, second, it feels good.

You talked in the last quarterly report conference call about the coming competition from Asian companies. What is happening there and why? Well, first of all, competition is very good for you. I learned that the hard way at IBM and Wang. It keeps you on your toes.

I believe the best competitors globally will come from an environment that has a combination of three things: first, an extremely good education system that focuses on computer sciences, math and basic science. China, as an example, graduates 25 percent of university graduates in these areas. It"s huge. We in the U.S. have less than 10 percent of our master"s students go into these areas. Second, they have built a very competitive infrastructure. Third, they have an unusually supportive government, not just on issues such as education and an easy environment to do business in, but on stock options and other things. I find it ironic that the U.S. invented the sharing of the success of the company with its employees very broadly, and now we have other countries around the world that beat us not only in education and infrastructure, but also in terms of employee ownership.

More than a year ago, analysts and customers were complaining about Cisco as a high-priced alternative. But at this week"s analyst conference some analysts actually said Cisco seems to be reacting to the criticism and dropping prices a little bit on some products. What have you done on price and how are customers reacting? First, we double the price-performance ratio every 12 months. We tended to move in the past based on what our peers did in the industry or on a new generation of products. Then, we made the decision almost two years ago that were going to focus on designing our products in less time than Moore"s Law of 18 months and making pricing changes to almost every product line at a pace of Moore"s Law or faster -- regardless of what the competitors did. So every quarter I sit down with Mario Mazzola, our chief development officer, and we go through all our products and say where are we in the last 12 months? And, I ask are we either announcing products with dramatically higher price-performance or are we announcing cuts in prices for the current products?

So, we listened to our customers, and candidly, the industry press as well, about pricing. This was an issue of fact, not of perception. But now we are being very open and talking about what has occurred on price-performance. I haven"t had that issue raised in a customer call in a very long time. Looking back a year or two, by contrast, it might be raised in a customer call or a press interview every third or fourth time. So, it takes time once you make a change for people to give you credit for it.

Compared to your major competitors, do you think you have good price-performance? Five years ago, we might have had product leadership in one or two categories. But today it appears that (we have) product and innovation leadership in almost every category except optical. It"s not just being No. 1 in each category, but asking whether we"ve been effective on price-performance on various products. It isn"t just market share, but it"s also innovation and leadership. People five years ago said Cisco innovated in just a couple of areas, but not broadly. I think today we get extremely high marks on innovation. And innovation isn"t just doing it yourself, it"s also partnering and acquiring other companies. ... Very few companies can do all three, but we think we"re getting reasonably good at doing that.

There"s been a lot of interest by investors about what advanced technologies Cisco will pursue beyond those you already sell into. Any hints? When we move into a new advanced technology, we will keep it relatively in stealth mode until we are ready for our customers to see it and get the feedback. So we are careful about what the new advanced technologies are, but have also been very open in the last three to four months about what we"re going to do in the data center.

I"m asking managers for product road maps ... to give ... customers timeframes and architectures to help them plan. So we"re going to attempt to do more of the road maps. The data center was one that clearly with the introduction of the MDS 9000 Series Multilayer SAN Switch was just a first step (toward a new advanced technology). Our role in much of the virtualization of services and applications and resources plays perfectly for that area.

Because you really want it to be transparent regardless of the type of device you have in your hand if you access the network, you really don"t care, nor should you know, whether data is processed in that device, where the app was, if the information you stored was there or was it at the edge of the network or at the core or was it somewhere in the World Wide Web. That"s what routing is really about. This is an area that makes transparent the storage or servers or applications or physical location. That is networking. So, the data center is a logical extension move (for advanced technologies).

Will this data center advancement be done through partnerships? It will be through partnerships, internal development and acquisitions -- all the above. We"re coming up on 10 technologies (we sell), and we hope to grow to 15 or 20.

You"ve mentioned the possibility of another advanced technology in Layer 4-7 switching. Will that be the case? If you look at where we"re going, the lines between Layers 1, 2, 3 and 4 are blurring very rapidly. The same is true as you go up the stack to Layer 7 for applications. If you look at our network evolution, the first phase of where we"re going to go for Intelligent Information Networks is the movement of voice, data and video over combined networks. The second phase is this virtualization of services and resources. And the third phase is this one of application-aware networks, which has huge implications in terms of the doors that it opens up. So, application-aware networks will be a piece of that (advanced technology offering). While this was pretty controversial two years ago when we started down this path, not many people disagree with the concept. The question is how far it will go and the level of implementation.

By the time a technology becomes obvious to most of your customers or most of your peers in the industry or most of your employees, it becomes too late for you as a company to participate (and benefit from selling). That"s why you see Cisco take good business risks. It may surprise you, but almost all of our mistakes have come when I haven"t moved fast enough. I"ve had a few areas that I would have done over in the last 10 years.

Name one or two examples where Cisco didn"t move fast enough. Lead times on shipping products got too long in "98, "99 and 2000. I didn"t move fast enough because I didn"t think demand would grow 50 percent to 70 percent a year. I wish I had moved faster. And (Cisco should have been faster) about moving toward what I knew had to happen with security across the whole network. I listened to customers and thought that had to occur, but it took me a while to get my engineering team on it. That was about three years ago.