Faster and More Consistent in Innovation

 
 
By Chris Preimesberger  |  Posted 2011-09-13
 
 
 

Cisco Systems CEO Sends Fightin' Words to Competitors


Cisco Systems, which for years owned more than 50 percent of the Internet networking gear market but has lost some 10 percent of that market share in the last few years, never had to position itself as aggressive in the marketplace because it was usually in a comfortable first-place position.

Today, the company still is in first place, but the situation is a lot more dicey. National and international competitors are gradually gaining market share, most of Cisco's public-sector customers are wading through major income cuts, and the general world economy is still slumping.

Cisco has been forced into expansion into new markets, such as data center servers and other equipment. It also has excised some of its lower-margin consumer businesses, including the popular Flip videocam-which it produced for only two years.

Due to lower than expected profit in 2011, Cisco was forced to reduce annual expenses by $1 billion. The company cut some 3,000 employees who accepted buyouts with an early-retirement program and has eliminated about 12,000 other jobs (about 14 percent of the 73,400 total employees before layoffs).

As a result of all this, the company and its media-savvy CEO, John Chambers (pictured), appear to be morphing from benevolent-but-gutsy market leaders into street fighters.

Chambers Names Names, Take Shots

At the company's annual analysts' day Sept. 13 at its San Jose, Calif., headquarters, Chambers came out swinging at his competitors like a motivated boxer in a ring, naming names and calling the shots at the company's major router-and-switch-making foes as he sees them.

"You're going to see us go after Juniper. Juniper is the most vulnerable I've ever seen them,"  Chambers told the SRO crowd on his home campus. "They're spreading themselves too thin in terms of focus on [being a] service provider, and in their movement in the enterprise. Going into a market slowdown, where you have less than 20 percent market share in the enterprise ... [they have] a lot of teams that don't understand networking.

"You're going to see us go after HP. Strategy is really hurting there. This is also the company that said we [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."

"Avaya-it's going to be a video world, and it's going to be an architectural play. We clearly are going to own collaboration."

Against China's top networking company, Chambers had a distinctly different take.

"Huawei-it's going to be a tough one," he said. "Those first three [Juniper, HP and Avaya], I think we have a good chance of completely distancing them and leaving them behind, and I measure our success on whether we do that or not. Huawei is going to be a very tough long-term competitor.

"What's Rule No. 1 with your long-term competitor? Take them on in their home market. You have to. You can't let them make all their profits in China and then go against you with no profits in the rest of the world. And we will take them on in terms of 'How do you change people's lives,' and 'How do you do it in total?'"

Faster and More Consistent in Innovation



In summarizing Cisco's outlook for the next two to three years, Chambers said, "If we do our job right, what you will find is that we will be the clear leader in the five foundational areas that determine the future of networking-and not just networking, but perhaps IT and business transformation. And we'll be doing this with mobility and security across the five areas.

"We'll be faster and more consistent in our innovation-the key word here is 'consistent,'" Chambers said. 

Chambers also said he expects Cisco to obtain 40 percent of its long-term growth from emerging markets compared with about 20 percent now.

In the meantime, Chambers said he is seeing positive signs from Cisco's existing customers. "I haven't called on a customer with Cisco in the last 120 days who isn't going to keep their spending with Cisco, or increase it," Chambers said.

Later in the day, CFO Gary Moore predicted annual sales growth of 5 percent to 7 percent by 2014, a slowdown from the range of 12 percent to 17 percent Cisco had been predicting until this year.

Chambers told analysts he plans to remain at the company for another three years. "The board of directors and the management are completely in sync," he said.

Meanwhile, the company launched three new routers for the service provider market in support of its nV virtualization package. The new products are designed to help service providers handle increases in data traffic from the huge upsurge of smartphones and tablet PCs.

HP Responds 

A day following Chambers' remarks, HP sent a statement via email to eWEEK: "Comments from Cisco today (Sept. 13) are reinforcing what we have been saying for two years: Networking is no longer a one-horse race. Clearly, the traction that HP has gained in a short period of time has made us a significant threat to Cisco.  

"Customer buying behavior of HP Networking solutions over the last two years makes it clear why anyone in the networking hardware space would identify HP as a top competitor. HP is the No. 2 networking vendor in market share by revenue in Ethernet switching, recently gaining 360 basis points in market since late 2008. HP's gain was acquired largely at the expense of the No. 1 vendor, which lost 600 basis points in marketshare over the same period, according to a recent report from Dell'Oro.

"In the third quarter of fiscal year 2011, HP reported revenue growth of 15 percent year over year for HP Networking, which is the seventh consecutive quarter of double-digit growth."

Editor's note: This article was updated 9/14/11 with Hewlett-Packard's statement.

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