Cisco Campaign vs. Juniper, HP Offers Rewards, Risks: Analysts
Cisco Systems' new aggressive push against Juniper Networks and other networking rivals is a long time coming, but could present pitfalls if the vendor isn't careful, according to analysts.
In a week dominated by news from major Intel and Microsoft conferences, Cisco made its own headlines when CEO John Chambers and other executives met with financial analysts to outline their strategy to reinvigorate the networking giant. They painted a picture of leaner Cisco, slashing its long-range growth forecasts to 5 percent to 7 percent, down from 12 percent to 17 percent, amid a significant restructuring that includes cutting its work force by about 6,500, streamlining management and closing businesses, including its Flip video camera unit.
They also outlined a meaner Cisco, one more willing than in the past to spar with the likes of Juniper and Hewlett-Packard, and promising to take on Huawei Technologies in its home country of China.
"You're going to see us go after Juniper," Chambers said during the Sept. 13 financial analyst meeting. "Juniper is the most vulnerable I've ever seen them. They're spreading themselves too thin in terms of focus on [being a] service provider, and in their movement in the enterprise. ... You're going to see us go after HP. Strategy is really hurting there. This is also the company that said [Cisco] would never stay in the UCS [Unified Computing System] business, that we'd have to sell these on a foreign planet-so we're selling a lot of them on a foreign planet."
Those comments came a day after Rob Lloyd, executive vice president of operations at Cisco, told the Wall Street Journal that Juniper is "leaving customers and partners disappointed. We think we need to be a little more aggressive in calling out missed promises and missed expectations."
In addition, Cisco put up a Website accusing Juniper of promising more than it's delivering, and pointing out where Cisco is outperforming its rival.
Juniper fired back with a post on its Architecting the Network blog, saying that several of the technologies that Cisco accused Juniper of not delivering on-from its $100 million QFabric networking architecture to its MobileNext mobility strategy-are now shipping.
"It seems that frustration may have gotten the best of the group that launched this marketing stunt directed at us," Luc Ceuppens, vice president of product marketing of Juniper's High-End Systems Business Unit, wrote in the blog. "Over the last few years, competitors have seemed to become resigned to the fact they were at least a generation behind Juniper in core routing, but now it's happening in edge, the data center, mobility and security. ... And most importantly, Juniper is seen as the thought leader by many. Since the competition couldn't beat us on the innovation scale, I guess they decided to attack our credibility."
Yankee Group analyst Zeus Kerravala said that, in the past, when Cisco was competing with the likes of 3Com, the competition was weak to the point that there was no need to call out its rivals. Cisco rarely if ever went on such an offensive. However, in recent years, with Juniper, HP, Dell and others aggressively muscling their way into the networking market and taking share away from Cisco, that's changed. These vendors took advantage of Cisco losing focus on its switching and router businesses as it moved into new areas, all the while calling out Cisco on aspects like pricing and innovation. It was past time that Cisco fought back, Kerravala said.
"It was something they should have done years ago," he said in an interview with eWEEK. "Cisco has been distracted and did take their eyes off the networking ball and let some competitors come up and surprise them."
For too long, Cisco executives let Juniper, HP and others make claims against Cisco, and after time, with Cisco not defending itself, those claims began to take hold with customers, Kerravala said.
"Now we're seeing how the new Cisco is going to be very aggressive," particularly at a time when its competitors are dealing with their own issues, he said. HP is undergoing a massive transformation that reportedly is making customers nervous. At the same time, Juniper's latest quarterly financial numbers were down.
For its part, Cisco is still in the midst of restructuring, but seems to be making the right moves, Kerravala said.
Other analysts agreed, but said there are risks in Cisco's strategy, particularly around pricing and profit margins. John Slack, an analyst with Citigroup, said in a research note that while Cisco has done a good job in its restructuring efforts, "taking a scorched-earth approach to the competition could add to margin pressures and further exacerbate what is already a difficult pricing environment across the entire industry."
In addition, other analysts said that such pricing and profit margin pressures could increase more as Cisco takes on Huawei in China.
Rod Hall, an analyst with J.P. Morgan, said that Cisco should go after Huawei in China, but that it won't be easy. Doing so will be "highly risky and almost certainly painful. Going after Huawei on their home turf is fraught with risk to margins," he said.
However, Yankee Group's Kerravala said, "There's been price pressure for a while," and that Cisco-which in the past has traditionally focused on the enterprise market-is now rolling out networking products that address the mid-market.