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Spotlight Cisco: Reviving an American Icon

115 comments on “Spotlight Cisco: Reviving an American Icon

  1. Alexander Wolfe
    April 19, 2011

    Hello, everyone. Alex Wolfe here, looking forward to chatting about Cisco

  2. bolaji ojo
    April 19, 2011

    Hi Alex

  3. bolaji ojo
    April 19, 2011

    Thank you for agreeing to engage with our audience about Cisco.

  4. bolaji ojo
    April 19, 2011

    I would like to start the discussion with perhaps the question on everyone's mind. In your opinion, how much trouble, if any is Cisco in or is the company's current situation being blown out of proportion?

  5. Barbara Jorgensen
    April 19, 2011

    Hi Bolaji and Alex

    What kind fo time frame do you think we are talking about in terms of Cisco's reorganization?

     

  6. Alexander Wolfe
    April 19, 2011

    I believe the situation is being blown out of proportion. It's more a Wall Street problem than a true prob

     

  7. Alexander Wolfe
    April 19, 2011

    That said, Cisco does need to streamline its operations and cut costs

  8. Alexander Wolfe
    April 19, 2011

    Regarding time frame, that's a very good question. Chambers has not committed. I'd say they need to show progress within 6 months

  9. Barbara Jorgensen
    April 19, 2011

    What is your sense that the Cisco shareholders hold the same opinion as Wall Street?

  10. Anna Young
    April 19, 2011

    Alex, Isn't a “Wall Street problem” the first sign, though, of a much bigger problem that hasn't really been identified by common people on the street?

  11. Alexander Wolfe
    April 19, 2011

    Good point, Anna. But I think Cisco's problems are largely those resulting from size, a company that's become too big to respond quickly. Like IBM was at one point

  12. Barbara Jorgensen
    April 19, 2011

    Six months sounds reasonable given Cisco's size, but Wall Street is impatient. I hope they get six months.

  13. Alexander Wolfe
    April 19, 2011

    I believe Cisco's plan now to refocus on its core strengths — networking — and to pull back on consumer will go a long way towards fixing things

  14. Alexander Wolfe
    April 19, 2011

    Anna, are you an investor in Cisco?

  15. Anna Young
    April 19, 2011

    I was reviewing Cisco's financial numbers and wondering why Chambers is cutting off some business units. Revenue still seem to be growing?

    No, I am not a Cisco investor. I wish I had bought some of its shares years ago, however.

  16. Steve Saunders
    April 19, 2011

    Hi Alex, how can Chambers justify paying himself twice as much this year as last year when the results are as they are?

    Steve (not a cisco investor)  

  17. Barbara Jorgensen
    April 19, 2011

    To Anna's point: My perception is that the Flip is the closest people on the street got to Cisco–in other words, we know they are out there in the networking space

    My impression is that users rally loved the Flip

    Will this hurt Cisco?

  18. Alexander Wolfe
    April 19, 2011

    He can't, Steve. And he also can't justify the fact that he hasn't groomed a successor.

  19. Alexander Wolfe
    April 19, 2011

    Barbara, pulling the plug on Flip will hurt Chambers' goal of building Cisco's name w the general public — he wants to do what Andy Grove did with Intel in the 1990s. w those “ba-bum-bum-bump” commercials.

  20. Hawk
    April 19, 2011

    I was wondering also about the executive package too. Also, in the letter written by Chambers, which Alex referenced in his article, it seemed he pointed all his fingers in every direction but towards himself. Doesn't a chairman and CEO deserve some blame for the situation at his company?

  21. Barbara Jorgensen
    April 19, 2011

    Cisco Inside, so to speak. Makes sense. Or even along the lines that Bosch went–we make the things that make things better

  22. Alexander Wolfe
    April 19, 2011

    Getting back to Steve's point about Chambers, and also what Hawk (not Hawk from Spenser?) writes, I find it a real lapse that he, while he has a very deep exec bench, he's done a Steve Jobs, not grooming a next chairman. And I agree w Hawk abt the finger pointing, cause the biggest lapse–the councils–was Chambers' idea.

  23. Alexander Wolfe
    April 19, 2011

    One other point:

  24. Alexander Wolfe
    April 19, 2011

    Cisco's ongoing problem, one they won't be able to correct this round, is that they've always been dependent on very high margins (and attendent high price points).

  25. Alexander Wolfe
    April 19, 2011

    So they could fix all the decision-making bottlenecks–their most immediate issue, and the one which Chambers appears to be addressing–yet still be left w an earnings issue as far as Wall St. is concerned.

  26. Alexander Wolfe
    April 19, 2011

    OTOH,

  27. Anna Young
    April 19, 2011

    Steve Jobs might have done better considering he has had a COO (Timothy Cook, I believe) for years and the COO has been involved in managing the company thrice during Jobs' absence.

  28. Alexander Wolfe
    April 19, 2011

    I believe Cisco's near to long term plan to essentially productize the technology which powers cloud computing is a very smart strategy.

  29. Steve Saunders
    April 19, 2011

    Spenser Hawk would have just kicked Chambers ass

     

  30. Alexander Wolfe
    April 19, 2011

    Anna, you are correct, though I would point out that Cook has come to the fore as a result of circumstances (Jobs's poor health) rather than deliberately being brought forward.

    And touche Steve re Hawk…

  31. Barbara Jorgensen
    April 19, 2011

    I agree about the cloud, Alex, but aren't so many other companies already there? I mean, they aren't Cisco, but the cloud is becoming pretty populated already

  32. Steve Saunders
    April 19, 2011

    To me there have been a few big tipping points for Cisco recently.

    1. falling price of routers (I mean, basically they are free compared to whast they used to be)

    2. infatuation with vidconferencing as a replacement  high margin business, which it just isn't (and won't be for 6 years)

    3. Flip catastrophe

  33. Hawk
    April 19, 2011

    No, this is the real Hawk. If I can pursue Steve's question further, even the most powerful chairman/CEO does not determine his own compensation package. Cisco's compensation committee decided to award him the 2010 package despite the company's slide. And, also what credits or discredit should the board of directors receive in this case?

  34. Steve Saunders
    April 19, 2011

    all three add up to: poor judgement

  35. Alexander Wolfe
    April 19, 2011

    Barbara, the difference here is that Cisco is trying to carve out a niche as provider of cloud “technology in a box,” as it were. Not cloud services, but the switches, routers, API set up etc.

  36. Barbara Jorgensen
    April 19, 2011

    Stve–Spenser Hawk could kick ass with a mere glance

  37. Barbara Jorgensen
    April 19, 2011

    Alex–got it. Thanks!

  38. Steve Saunders
    April 19, 2011

    the thing about cloud is that it is the ultimate commoditized service. also, the entire point of the cloud is that it doesn't matter who'se kit the services run over. Also, the money in cloud  is in services, not infrastrcuture, and Cisco is still an infrastructure player

     

  39. Alexander Wolfe
    April 19, 2011

    So re cloud, Cisco is really trying to be to the cloud what Intel has been to the PC for the past 30 years

  40. Steve Saunders
    April 19, 2011

    Alex: exactly

  41. Anna Young
    April 19, 2011

    Steve, there are people who have mentioned clearly that they believe it's time for Cisco to get a new CEO. Would you and Alex agree to that? Is it time for Chambers to depart?

  42. Steve Saunders
    April 19, 2011

    and that's a big mistake. because the entire history of comms tech shows a trend away from infrastructure and towards software and services in terms of where the MONEY is!

  43. Alexander Wolfe
    April 19, 2011

    I don't believe so, not til a successor is in place, cause right now Chambers is too interwined with the company. But the board must force him to plan for succession

  44. Alexander Wolfe
    April 19, 2011

    Steve, if Cisco is successful in doing “cloud in a box,” the will effectively straddle hardware and services, in that they will first sell hardware but then also offer tools to enable customers to get quickly into the cloud.So this might enable them to have an entree into services as their next big revenue stream.

  45. Hawk
    April 19, 2011

    Exactly, I believe the entire electronics market is prone to commoditization, including so-called high-end products. The danger is that many companies fail to realize this early enough. Cisco is not competing on the strength of its software but on the strength of the speed and resilience of its hardware. That's a long-term losing proposition. In today's world, businesses and consumers expect great hardware — they take it as the basic foundation for products. It's the software, the interface that wins them away from one supplier to another.

  46. Steve Saunders
    April 19, 2011

    i think the impact of him leaving now would be worse than him staying but i also agree with Alex that he needs a bigger stronger bench. I mean, talk to any one in tech and ask them who they know at Cisco and they go “Chambers” then there's a long pause. Mike Volpi was good but he left (didn't he?)  

     

  47. Alexander Wolfe
    April 19, 2011

    Also when you listen to Cisco events, everyone speaks to the same talking points. Which is par for the course, but I wonder how vigorous the internal debate is.

  48. Barbara Jorgensen
    April 19, 2011

    I hear you, Steve, but there is still a need for hardware and if you have the infrastructure for manufacturing, as Cisco has, you will still have a lot of room to grow. Look at all the competition out there already for the software/services standpoint–I think there will be a very rapid decline in population there. Hardware isn't something you can just up and do, some service offerings don't have that level of start-up cost

  49. Alexander Wolfe
    April 19, 2011

    One thing we haven't talked about is the competitive landscape re Cisco, and I think that's telling. Cisco does have a LARGE footprint, everyone else is just nipping at their heels. Except in servers, where Cisco is the new kid, nipping at HP and IBM

  50. Barbara Jorgensen
    April 19, 2011

    I gotta add another plug for hardare, folks–that is EBN's bread and butter. Manufacturing is still alive and well–maybe on in the US, but I do not agree hardware is a losing proposition

  51. bolaji ojo
    April 19, 2011

    Alex, if I can take you up on the competitive landscape. Cisco is heavy in Europe and North America. A greater percentage of its sales come from these two regions and it is facing strong headwind in Asia, which is where the next wave of infrastructure spending will come from. Don't you see this as a problem longer-term?

  52. Alexander Wolfe
    April 19, 2011

    Barbara, what effect will Chambers' plan have on Cisco's supply chain. Will there be more (perhaps unreasonable) pressure, the cost cutting falling on suppliers?

  53. Alexander Wolfe
    April 19, 2011

    That's a very good point, Bolaji. I'm not familiar with the strength of Cisco's Asia presence. Something for me to look into.

  54. bolaji ojo
    April 19, 2011

    Certainly. Suppliers must be wondering by now what their fate would be. It's always disruptive to a company's manufacturing operation and you can bet many of Cisco's contract manufacturers would be desperate to know the details of the company's reorganization plans.

  55. Barbara Jorgensen
    April 19, 2011

    Alex–short answer, yes. Cisco is the 800 pound gorilla in the supply chian, and suppliers will do anything and everything they can to accommodate Cisco.

  56. Steve Saunders
    April 19, 2011

    Hi Barbara (of the award winning EBN site!) – i hear you on the hardware stuff but the problem (and it is a hge problem) is that the margins are not there now. Cisco used toget away with charging $100,000 for one T3 router port, now you can get a gig for a $1000. There are vanishing margins in that line of business!!!!!!!

  57. Alexander Wolfe
    April 19, 2011

    To me, the one insoluable component of the equation is, how can Cisco maintain their status as what's effective the premier (high end, high margin) networking supplier in what Steve has rightly pointed out is a market that's commodity.

  58. Alexander Wolfe
    April 19, 2011

    Ah i see great minds think alike..

  59. Steve Saunders
    April 19, 2011

    we need to look ten years out and see where these trends take us… Cisco WAS a money machine. Now, less so. I sense a disaster on the horizon. It's desperately trying to reinvent itself but it's not taking.

  60. Steve Saunders
    April 19, 2011

    the question is: what is to be done. IBM was able to reinvent itself as a yet more effective company byt switching missions from software and PCs to services. Can Cisco follow suit?

  61. Alexander Wolfe
    April 19, 2011

    One other thing that interests me is Juniper, which has tried to articulate a broad vision, a la Cisco, but doesn't seem to be able to get the love from the press that Cisco does. So Juniper is more sotto voce..

  62. Alexander Wolfe
    April 19, 2011

    Steve, that's one thing I see Cisco trying to do with cloud, as I mentioned earlier, using hardware sales as a entree toward services, but cloud setup services as opposed to selling metered CPU time

  63. Steve Saunders
    April 19, 2011

    Juniper – now there's a story. They certainly have a HUGE Napoleon complex. I deal with them all the time whe i was CEO of light reading and my god you could really set their marekting people off by saying things like “when will juniper be considered an incumbent like Cisco”?

    lol!

     

  64. Barbara Jorgensen
    April 19, 2011

    Steve — (of the awesomely supportive DeusM suite) too true. Hardware companies must offset that with a supporting service offering. That is one aspect of Cico's business I am not familiar with–what types of ervice do they offer in suppoer of their hradware?

  65. bolaji ojo
    April 19, 2011

    Here are a few numbers related to Cisco's sales by region. In the first six months of its current fiscal year (ended Jan. 29) the company reported total sales of $21.57 billion. More than half of that ($11.4 billion) was from the United States and Canada; $4.1 billion was from Europe while Asia/Pacific, which included Japan represented only $3.2 billion. EMEA was even lower at $2.4 billion.

    What this tells me is that whatever expansion is happening in Asia, Cisco is getting not as much of it as it is getting in North America and Europe. Who is winning these sales and how can Cisco get in on the action because on a longer-term basis it cannot afford to continue to be a local champion in North America and Europe. Most other companies in the hardware space are generating more of their sales from outside North America.

  66. Steve Saunders
    April 19, 2011

    i like the idea of using hardware to make a cloud entree. Strategically thast makes lots of sense.

  67. Alexander Wolfe
    April 19, 2011

    Absolutely, Steve. But they also don't quite have the marketing rap down the way Cisco does. When I went to their big press conference over a yr ago, when Juniper announced they were getting on the NASDAQ, their big analogy was how this move was as momentus as the release of Abbey Road. Now, I love the Beatles, but…

  68. Steve Saunders
    April 19, 2011

    Award winning Bolaji: why is that?

  69. Alexander Wolfe
    April 19, 2011

    That's an important observation, Bolaji, re Asia.

  70. Steve Saunders
    April 19, 2011

    lex: brilliant segue totalk about marketing. Did you know that Cisco has brought alot of their marketing inhouse? I think this is an absolutely huge mistake. They really need the benefit of third parties to endorese and qualify their claims and positioning.  

  71. Barbara Jorgensen
    April 19, 2011

    Abbey Road–lol someone needs some perspective

  72. bolaji ojo
    April 19, 2011

    I have a few conjectures on this. The router/switches business is not one that many governments want to leave in the hands of foreign companies. When it can be avoided national governments encourage the participation of local businesses they feel they can trust or even control in such areas, hence the rapid growth of Huawei. To win in China, Cisco will have to evolve its national identity beyond being an American company. Even then it may not be completely trusted. That's a dilemma the company may not overcome.

  73. Alexander Wolfe
    April 19, 2011

    Oh, my. In house marketing at Cisco, which is a company where you don't go against consensus. A prescription for disaster, if someone fields a plan that is to marketing what the Aztek was to Pontiacs

  74. Barbara Jorgensen
    April 19, 2011

    Question for Alex and/or award-winning Bolaji: How is Cisco appraoching the Far East, and how can they do better?

  75. Steve Saunders
    April 19, 2011

    Abbey Road: that's practically blasphemy! What next? “Bigger than God”???

  76. Barbara Jorgensen
    April 19, 2011

    Bolaji–you man like Huawei faces in the US?

  77. Barbara Jorgensen
    April 19, 2011

    Well, I'd give Juniper maybe Boston's debut album, aptly named “Boston” but not Abbey Road

  78. Steve Saunders
    April 19, 2011

    hey guys, much as i've enjoyed chatting i have to run – ciao

  79. Alexander Wolfe
    April 19, 2011

    Re router/switches not from foreign suppliers, that's a good point but in some sense wishful thinking that this will prevent back doors, which you don't have to be a conspiracy theorist to assume are already in there.

  80. Barbara Jorgensen
    April 19, 2011

    But I digress

  81. Alexander Wolfe
    April 19, 2011

    Re Boston, I always analogized Boston to Seinfeld, in that they were a band about nothing…

  82. Anna Young
    April 19, 2011

    You cannot win anymore solely because you've got great hardware. By the way, I see many articles focused on software on EBN, which tells me this is an increasingly important area for all companies. Even in the semiconductor area suppliers are offering so-called system on a chip, another fancy way of saying we'll help integrate software into our products. Also, companies like Freescale are hiring not just design engineers but also software engineers.

  83. bolaji ojo
    April 19, 2011

    Barbara, Yes. Huawei faces the same daunting challenge in the US and in Europe as Cisco is facing in China and India.

  84. Alexander Wolfe
    April 19, 2011

    Ah, good point Anna. And we haven't talked abt the semiconductor angle of networking, which is interesting but hasn't risen to the fore cause there's no economics there to make a biz out of it . (did you know that Intel has done internal stuff where you can build routers out of x86 blocks?)

  85. Anna Young
    April 19, 2011

    No, I wasn't aware of the Intel angle

  86. Alexander Wolfe
    April 19, 2011

    That kinda speaks to the point about all network hardware becoming commoditized. It's interesting to me in that regard how Juniper has tried to position itself as “open” as far as networking OS.

  87. Alexander Wolfe
    April 19, 2011

    to try to grab developers..

  88. Barbara Jorgensen
    April 19, 2011

    I'd like to hear more about the semicondcutor side of things. Alex, when you say economies, do you mean in terms of the demand, or that they economies of scale don't exist on the production side?

  89. Alexander Wolfe
    April 19, 2011

    Cause people always bash Cisco for supposedly being “proprietary,” but in networking that doesn't hurt as much as elsewhere, because the cost of entry, expertise-wise, is so high.

  90. Alexander Wolfe
    April 19, 2011

    I meant that the volumes aren't there for someone to peel that off as a sep biz. Cisco and Juniper do custom silicon for their switches etc. where the volumes make it economical, and then use ASICs around that where the volumes won't support a full custom part

  91. Alexander Wolfe
    April 19, 2011

    There's enough secret sauce in there though that Intel can't come in and say, ok just use x86 blocks.

  92. Barbara Jorgensen
    April 19, 2011

    Got it. Thanks

  93. Alexander Wolfe
    April 19, 2011

    it's really that the software being networking equipment is so complicated, that's where the real IP is

  94. Alexander Wolfe
    April 19, 2011

    i meant, software BEHIND (as in, inside)

  95. bolaji ojo
    April 19, 2011

    Alex, There's a connection between the marketing issue raised by Steve and the problem of expanding in Asia. The company needs a much bigger turnaround program than Chambers is acknowledging. This may seem a stretch but the weight of its sales leans too much towards the West while Asia is also growing fast. With a marketing plan that understands all the challenges Cisco may be able to win also Asia-Pacific. Has the company admitted the challenge of Asia and how it might increase sales in the region?

  96. Barbara Jorgensen
    April 19, 2011

    Is Cisco developing the IP or is that thrid-aprty?

  97. Alexander Wolfe
    April 19, 2011

    Cisco, Barbara.

  98. Alexander Wolfe
    April 19, 2011

    That's a good point, Bolaji. I don't know enough about the Asia-Pacific market to answer.

  99. Barbara Jorgensen
    April 19, 2011

    Thanks, Alex.

  100. Barbara Jorgensen
    April 19, 2011

    Excellent point, Bolaji. It seems odd that Cisco hasn't capitalized on the expansion in the Far East. At the same time, they may be facing regulatory issues such as Huawei is fcing here, but I haven't heard anyhting like that…

  101. Hawk
    April 19, 2011

    Alex, If you don't mind my circling back to a point raised earlier. What's next then for Cisco and Chambers? Has Cisco mapped the most effective strategy for moving ahead or is it spinning the wheels?

  102. Alexander Wolfe
    April 19, 2011

    A slight tangent, but I also want to point out, it'll be interesting to watch in 2011 what HP does in networking, in that HP has a new CEO and also they're in the midst of rebranding their networking equipment, moving it out from under the HP Procurve brand into HP proper

  103. Alexander Wolfe
    April 19, 2011

    Hawk, I think we don't have real visibility yet into what Cisco is doing internally to implement the changes — streamlining, etc — that Chambers called for in his email to employees.

  104. Alexander Wolfe
    April 19, 2011

    As in, how quickly is Cisco really moving

  105. Anna Young
    April 19, 2011

    It's going to come down to wait and see. It's too early now to see the results of what Cisco is doing. Let's hope the company get it right otherwise the impact if it has to embark upon another reorganization would be more negative.

  106. Alexander Wolfe
    April 19, 2011

    Agreed, Anna.

  107. Barbara Jorgensen
    April 19, 2011

    I'd expect to see Wall Street light a fire under them if they take what is perceived as too long

  108. Alexander Wolfe
    April 19, 2011

    well, Cisco is trading at the low end of its 52-week range. At 16.60 right now. 52 wk high was 27.74

  109. bolaji ojo
    April 19, 2011

    Alex, Any final comments or takeaways for us about Cisco. I noticed you didn't address how investors should approach this.

  110. bolaji ojo
    April 19, 2011

    That doesn't indicate any level of confidence in the reorganization.

  111. Anna Young
    April 19, 2011

    I would buy Cisco now but that would still be taking a chance on the company because its stock price could still decline if the reorganization is not considered a success.

  112. Alexander Wolfe
    April 19, 2011

    I tend to look at things more through a technologists and reporters eyes rather than investors. On the first two, I am optimistic. I believe Cisco has the people and technology to succeed and that the cloud strategy will pay off. But it's going to be a long course. No 3-month or even 6-month fix

  113. bolaji ojo
    April 19, 2011

    Alex, Thank you for taking the time to chat with us. It's been a pleasure. Hope you'll join us again in the near future.

  114. Alexander Wolfe
    April 19, 2011

    Thank you, Bolaji, and thanks very much to everyone. This was a great discussion. I really enjoyed it.

  115. bolaji ojo
    April 19, 2011

    Thanks everyone.

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