That's a great point about Cisco's competition heating up, elctrnx_lyf. You mention Juniper, which is certainly the number one competitor Cisco needs to be concerned about in terms of a company which is also fielding a comprehensive vision (and product line) as far as being a complete provider of all aspects of networking technology.
However, Cisco also needs to battle the likes of HP (the Procurve stuff), F5, Brocade, Dell (Powerconnect), and others. That's why I believe it's particularly important for Cisco to reduce its costs, so it can live with tighter margins as it strives to compete.
Or course, tighter margins means Cisco will have to increase its sales volumes just to remain steady, earnings-wise, so there are a lot of moving parts to the competitive equation to contend with.
Cisco has been a leader for a long time, but now there is lot of other companies which are on head to head competetion in different product segments. Particularly Juniper is moving ahead in few areas like mobile back haul networks and cisco doesn't want to take it easy anymore. They will invest their money, time and people only for the networking products.
Perhaps the Flip may not break even any time soon? I always see Cisco as the market leader in routers and networking. Probably Cisco is seeing more and more competition, epsecially in the household markets where there are many alternatives from China.
I find it very interesting that Cisco's first move is to shut down a part of its business. It seems that they need to look inward and streamline their operations as well as take a long hard look at their strategic goals. I agree with the previous comments about the Flip. When I was researching video cameras for my daughter for Christmas, the Flip was the best quality camera for the price. It's a shame they didn't try to spin it off or sell it rather than just shutting it down and laying off hundreds of people. I really fail to see how this addresses their core problems, it barely scratches the surface.
This was a very informative article. It will be interesting to see how many drastic changes Cisco is going to make to remain competitive and gain more ground in the market. I am curious as to what Cisco plans on doing with Flip. Are they just going to shut it down and eat the total costs, or sell that part of the business to a competitor? I've heard great things about the camera from people who own them.
Excellent points, sureddy. You nailed it. Initially, acquisitions were a good way for Cisco to grow, but as the company became, er, humungous, eventually they became a drag on the business and detracted from a core focus on networking.
As you aptly put it: "The complexity of trying to manage these different business units will overwhelm the advantage of integration."
Of course the big question now is, if Cisco successfully pares back costs and also cuts business units, and then if they cut margins, too, to be more competitive, how do they increase sales volumes to make up the difference (i.e., to grow revenues)?
Good analysis Alex. I would like to cite a blog i wrote a blog way back in 2009 on Cisco's M&A strategy and challenges of integration.. Check it out at http://skreddy.wordpress.com/2009/10/25/views-and-experiences-growth-by-innovation-or-ma/
Like to share some of my thoughts ...
... Cisco has worked to make acquisitions a routine process, as route as the product development. Kind of open their eyes and ears to look for new innovations part of their strategy. This strategy worked well for Cisco for reasonable amount of time. Does this strategy work for long run? Is it sustainable? In my view, I think they also reached the point of inflection. For every strategy there is a decay unless it is constantly refined and reinforced. And I am sure Cisco started to experience this too. It is rather very difficult to scale this strategy for ever. The complexity of trying to manage these different business units soon will overwhelm the advantage of integration. Though M&A helps eliminating the competition vs making their competition irrelevant. Companies that focus on this strategy, soon end up with an unsustainable or strategy decay. What do they do next? Then they go and spin-off or de-mergers or break them into small companies. Or get rid of the bad apples. All these would lead to the circus of financial engineering to unlock the shareholder wealth. Never forget that good companies gone bad are simply companies that for too long denied the strategy decay or trying to over reach their growth without any strategic differentiation.
Hi Alexander, thanks for the very interesting article.Cisco has a lot at stake and getting aggressive for the UCS (Unified Communications Systems) market is a good move.This is an area that can provide positive growth and can easily scale.Just recently Cisco and Verizon jointly announced that they will be offering UCS as a service together.This should help both companies gain market share quickly in this space.
Cisco bought Pure Digital, the makers of the Flip video camera, as part of its expansion into consumer during the company's acquistion binge. I believe Cisco was hoping for a couple of things. One was to enhance their consumer branding and presence. We see that in action with the ever-present Cisco telepresence commercials with Ellen Page.
The other thing they were hoping for is a kind of second-order effect, where consumers would buy lots of Flip cameras, upload lots of video, and thus the bandwidth requirements of consumers in aggregate would increase, leading to sales of more routers. I'm obviously talking on a long time line and on macro scale here.
True, as both DennisQ and anandvy point out, a half billion is a lot of money to waste, but OTOH I take it as an encouraging sign that Cisco is intent on lightening up on the consumer and refocusing on its core businesses.
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