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Cisco joins Dow, as GM jettisoned

'Information superhighway' and all that

By Timothy Prickett Morgan • Get more from this author

Posted in Enterprise, 1st June 2009 18:07 GMT

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Let the metaphor mixing begin.

With American car maker General Motors filing for bankruptcy, the Dow Jones company - which puts together the eponymous industrial average to gauge the strength of the stock market and, in turn, the U.S. economy - had to yank GM from the DJIA index this morning. GM will be permanently removed from the index, as it turns out, and on June 8, it will be replaced by networking maker and server wannabe Cisco Systems.

In an interview at the Wall Street Journal's online site, John Prestbo, the executive director in charge of the Dow Jones indexes, explained that removing GM from the ranking of the 30 industrial companies was automatic, since the company does not allow bankrupt firms in the indexes. Prestbo explained that Dow Jones sees Cisco as transformative to American culture and business, like the car was at the beginning of the last century, and referred to the maker of networking gear as the "pavement of the information highway."

As wonderful as this all sounds, if the economy was not on the rocks and the American car business wasn't sinking as much from its own strategies as from the meltdown, it is hardly imaginable that GM would have been removed from the DJIA and replaced by Cisco. If the Internet is truly transformative - and it is, since many of us don't take cars to work, but do indeed commute over the Internet - then the DJIA would have included Sun Microsystems and Cisco a decade ago.

But because GM has gone bust, something has to go in there, and it has to be a tech firm given the importance of the technology sector on the economy. With IBM in the average since 1979, Hewlett-Packard in since 1997, and Microsoft and Intel added in 1999, the wonder is that Cisco has not already been added. (Telecom giants AT&T and Verizon are on the list as well).

Last fall, when insurer American International Group went into receivership and fell under the control of Uncle Sam, that company was removed from the DJIA as was replaced by Kraft Foods. Prestbo said that Dow Jones wanted to get an insurer back in the list, and that is why it chose Travelers Companies to add, ironically replacing Citigroup, its former parent company that has been forced to spin out Travelers to keep itself afloat.

Like GM and AIG, Citigroup has been propped up by the federal government, and Prestbo said that Citigroup's time had come to be removed from the list because it is "much influenced" by the government and it will emerge from its reorganization as a much smaller company.

Another wonder is why one of the big Internet stocks - Amazon, eBay, Google, or Yahoo - have not been added to the list. These companies and their products are as important to the current economy as oil, cars, aluminum, tires, drugs, banking, and telecom have been in the 21st century. ®

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