Cisco CEO Predicts 'Brutal Consolidation' Coming in IT Sector

Chambers: "Architectures will make the difference" in developing server, storage and networking systems that will power the Internet of everything.

Cisco Systems CEO and Chairman John Chambers, attending his 23rd of 25 Cisco Live conferences, stuck to his script May 19 in his Day 1 opening keynote, setting the stage for the three-day event and defining his company's role as a key developer of the Internet of things.

Only the previous day, Chambers had made news with a letter he sent to President Barack Obama calling on his administration to rein in government surveillance following allegations that the National Security Agency has intercepted shipments of IT gear and installed its own firmware into the systems for spy purposes.

But he said not a word about the NSA on stage in front of several thousand conference attendees. Instead, he stayed on message, telling the audience that "architectures will make the difference" in developing server, storage and networking software and systems that will power the Internet of everything in the years to come, and that Cisco intends to be among the "two or three large IT providers" that will survive a shakeout he sees happening in the next few years.

NSA 'Damaging Global Confidence in IT Industry'

To recap: Chambers said in his May 18 letter that reports about the NSA putting surveillance technology into servers and networking gear—allegedly including products from Cisco—as the systems move between the manufacturer and customer will damage global confidence in the tech industry and make it more difficult for vendors to sell their wares.

"We simply cannot operate this way," Chambers wrote. "Our customers trust us to be able to deliver to their doorstops products that meet the highest standards of integrity and security."

See Jeff Burt's May 19 eWEEK article for the full story.

Chambers, now in his 25th year with Cisco and 19th as CEO, put IT innovation and product advancement into perspective in this way: "Back in 1989, when we staged the first Cisco developers event, we were talking about the first 1GB hard drive. Apple had just come out with a portable PC that weighed 14 pounds and cost $5,800. Now it weights one pound. So much has changed," he said.

It's a generally accepted notion that if enterprises in all markets do not keep up with the frenetic pace of technology improvements, pay attention to their customers and find their own ways to innovate, they could find themselves out of business -- no matter how successful they may be at this time.

Few of 1989 Fortune 500 Still in Business

"But now, we're seeing the speed of change as twice as fast as it was just three years ago," Chambers said. "We're going to do that again over the next five years. Companies have to change, to adjust to the markets. Of the Fortune 500 companies 25 years ago, only 24 percent are still in business. Only a third of us [the current Fortune 500] will exist in a meaningful way in 25 years from now."

Chambers held back no words about what he sees as a forthcoming battle to the death among the major all-purpose IT suppliers. He didn't name the companies on stage but was clearly referring to his own company, IBM, Hewlett-Packard, Oracle, Dell, Microsoft, EMC, Fujitsu, and a few others.

"Watch what's about to occur in the industry: You're going to see a brutal, brutal consolidation in the IT industry, where out of the top five players only two or three of us will be meaningful in as quick as five years," Chambers predicted.

Cisco and its partners intend to be among the survivors. "Nobody eats our lunch," Chambers said.

"If you look at the top companies in our industry, most of them will not exist in a meaningful way in just 10 years. We know we have to change. You have to change, too. Now the exciting thing is that all these changes have the network right at the core of their ability. When we talk about the top five IT players, using Gartner's list as an example, watch how disastrous the last two-and-a-half years have been, where an HP and an IBM hasn't had revenue growth for over two to three years. That's a brutal consolidation, even with well-run companies."

Disruption Like 'Musical Chairs'

Cisco has had very good growth, he said, "we saw the markets surprise us, but watch how we bounce back."

"We will see this disruption not so much in combinations, but more like musical chairs. By the way, the same things are going to happen in each of your own industries in the private sector," he said, looking out across the audience, which represented thousands of companies in most countries.

"Clouds will transform [business] in many ways, starting with the private cloud and going to hybrid and public clouds, and also in terms of an 'inner' cloud," Chambers said. "Security challenges will only get tougher, business and technology models will change with tremendous speed. Every company in every city in every country will begin to see their thoughtful leaders say that they need to become a technology company first, a retail company second; a tech company first, a bank second; a digital country, or a digital city."

Chambers set the key topic of the conference by declaring that new-gen IT is "all about architectures and app-centric infrastructure. Apps, network with scale, security -- that's what required from the Internet of everything."

Cisco's Application-Centric Infrastructure concept, developed through its spin-out company Insieme, aims to make the application the driving force behind the enterprise's software defined infrastructure -- and it depends in large part on proprietary Cisco hardware.

About 25,000 conference attendees and another 200,000 online visitors will have ample time to talk about this for the next two days.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 15 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...