Cisco Systems today joins the elite circle of 30 blue-chip businesses that make up the Dow Jones industrial average, a move that may make it easier for the San Jose company to attract investors — at least initially.
Plus, in joining Intel and Hewlett-Packard on the list, Cisco is sure to get a boost in prestige. But more than anything, experts say, the decision to replace General Motors with Cisco is recognition that technology is a primary innovator and spark plug of the nation's economy. And that trend is turning heads everywhere from Wall Street to Washington.
"It signals the ascendancy of Silicon Valley and high tech," said Stephen Levy of the Center for Continuing Study of the California Economy. "We're seeing older industries and companies be replaced by a sector that has substantial long-term growth prospects."
Technology already has the attention of President Barack Obama, who is actively promoting such ideas as smarter electricity grids and computerized health records. And now, with Cisco, HP and Intel on the fabled stock index, along with IBM and Microsoft, elected officials may listen even more closely to the needs of Bay Area businesses, said Jim Wunderman, CEO of the Bay Area Council.
"It certainly cements the tech industry in Silicon Valley as an integral part of the American economy," he said. "From a public policy basis, it has some impact. I think it makes a stronger case in Washington and maybe in the state capitals."
Since its debut in 1896, the Dow Jones industrial average has predominately featured so-called smokestack industries, from U.S. Rubber and Bethlehem Steel to Standard Oil and American Smelting. However, reflecting a major shift in the nation's economy, those types of businesses have gradually given ground to firms offering products centered on computers, software and communications technology.
Officials with the federal Bureau of Economic Analysis say it's hard to say how much of the gross domestic product is represented by sales of such technology to consumers and the government. But business purchases alone of such goods represented about 3 percent of the GDP in 2008, compared with less than 1 percent in 1968. And one of the biggest up-and-comers in the tech field is Cisco, which was founded in 1984 and earned $8 billion on sales of nearly $40 billion during its most recent fiscal year.
Since the June 1 announcement that Cisco will replace GM, a part of the index for 83 years, the Internet-networking equipment maker's stock price has risen more than 7 percent, closing Friday at $19.87. That kind of increase is common after companies are first selected for the list, in part because some big institutions invest heavily in firms that are on such indexes, said Sybille Reitz, a Dow Jones spokeswoman.
"It certainly does increase your visibility in the market," she said. "You're included among the bluest of the blue-chip companies in the United States." But the share-price bump frequently is temporary, she said, adding, "at the end of the day, it doesn't mean anything to their business or to their long-term stock price."
Although HP executives declined to discuss how they've been affected by being placed on the list in 1997, Intel, which got on two years later, hasn't seen much of an impact, according to spokesman Chuck Mulloy. "By and large, it's more prestige than anything substantive," he said.
John Roberts, director of Stanford's Center for Global Business and the Economy, also expressed skepticism that being on the index would mean significantly more business for Cisco or Silicon Valley. After all, he said, "very few people can tell you whether a given company is in the DJ30. I certainly cannot."
Still, in a prepared statement, Cisco officials said they are pleased at their inclusion. Noting that today marks "the first time in nearly 10 years that a technology company has been added to the Dow," the company said, "We are honored with this recognition of our continued strong performance."
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