Who’s Got Next?
Someone in this photo will succeed Cisco CEO John Chambers. From left: Rebecca Jacoby, CIO; Pankaj Patel, head of engineering; Wim Elfrink, EVP, industry solutions; Gary Moore, president and COO; Padmasree Warrior, chief technology and strategy officer; Chuck Robbins, head of sales; Chambers; Edzard Overbeek, SVP, services; Rob Lloyd, president, development and sales; Blair Christie, SVP, CMO. Not shown: Frank Calderoni, CFO.
Popping open a can of Diet Coke, John Chambers sits down to talk in his tiny, windowless conference room just off his rather modest office. Behind him on the wall are 13 framed posters signed by the engineers who created some of Cisco’s billion-dollar businesses (a litany of three-letter acronyms that only a geek could love). It’s been 19 years that he’s been running Cisco Systems, the world’s largest maker of data networking gear. Chambers would like nothing more than to add a few more posters to the wall before he’s gone.
Time is running out. The consummate salesman with a rapid-fire West Virginia twang finally announced in November a fuzzy timetable for his retirement: Sometime in the next two to four years. Chambers is the fifth longest-serving CEO in tech. It’s remarkable he’s held on to the job given that Cisco’s shares haven’t broken $35 since 2001.
In November Chambers, known for his knack for forecasting fluctuations, offered a disappointing forecast and said it was “hard to read” the economic environment. In December Cisco cut the low end of its sales growth estimates for the next three to five years from 5 percent to 3 percent. The last time it cut its long-term outlook was in 2011, when it projected growth of 12 percent to 15 percent. In February the company reported a 7.8 percent drop in quarterly sales and a product gross margin of 58.8 percent, the lowest in more than a decade.
“We’re not a perfect company, nor am I the perfect leader,” Chambers says. “I have to constantly reinvent myself. If you don’t do that, you get left behind.”
The problem: Cisco is finally facing the reckoning that hit the PC and server industries years ago. Its dominant market share in routers and switches, the equipment that directs internet traffic and accounts for almost half of its sales, is being eroded by networking software and by cheaper, unbranded alternatives to Cisco’s premium-priced equipment. Customers are outsourcing their networking needs to cloud service providers such as Rackspace and Amazon rather than building their own data centres. The phone companies, governments and large businesses that are Cisco’s biggest customers have dramatically reduced spending. The question is how quickly Cisco can supplant its declining businesses with expanding ones.
Chambers calls 2014 “the year of architecture”, as the $48.6 billion (sales) company pulls together new technologies that it can sell to customers instead of just the gear that transmits digital video, voice and email. Cisco is betting a big part of its future on what it calls the ‘Internet of Everything’, a world where billions of sensors, phones and machines can be stitched together by Cisco and its customers. The company teamed with Major League Baseball this year to allow fans in a stadium to use their smartphones to get real-time statistics and replays, including unique camera angles of the play. Through a mobile app Cisco helped develop with AT&T and app developer Meridian, visitors to the Fernbank Museum of Natural History in Atlanta have access to interactive audio, video, sketchbook logs and other features that pop up as they visit specific locations in the museum. The city of Barcelona has worked with Cisco over the past few years to connect its citizens through video-enabled information kiosks tied to city hall and mobile apps that direct users to available parking spots.
Cisco has been cutting prices to fend off rivals like Huawei, Alcatel- Lucent, Juniper Networks and Hewlett-Packard, sacrificing its once unassailable gross margins. Chambers also jettisoned more than 12,000 workers and ditched poorly performing businesses, including its consumer forays into things such as Flip video cameras. In March Cisco announced plans to spend more than $1 billion over the next two years to build a global computing cloud to underpin its Internet of Everything ambitions. It set up a $100 million Internet of Everything fund that has invested in about a dozen companies in the past year.
Cisco, which has always pursued a growth-by-acquisition strategy—spending $71 billion to buy 169 companies over its history—in 2012 spent $1.2 billion to buy Meraki, a maker of Wi-Fi networking gear, and in 2013 spent $2.7 billion for security provider Sourcefire and $863 million to buy what it didn’t already own of data-centre startup Insieme Networks, which makes products that have become Cisco’s answer to the software defined networking touted by such rivals as Arista Networks, VMWare, HP and Juniper.
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(This story appears in the 16 May, 2014 issue of Forbes India. To visit our Archives, click here.)
The tech market has move from products to services long ago. We may still have the mainframe and its miniatures , the data centers sprawling all around guzzling power and resources , markets are embracing the more ubiquitous offerings facilitated by the cloud. The era of IT being a utility is more plausible now than ever before. Protecting a 50 plus billion sales portfolio will be the biggest impediment for Cisco. The other tech bell weather IBM has realised this 10 quarters ago and is presently amidst the transformation of jettisoning their low margin commodity hardware business. For Cisco , the firmware business that provides the basic plumbing tools and work that was necessary then at the time of the dot com boom has only marginally incremented though the over all revenue size may mask it. How else could you explain Amazons spectacular rise in a domain that they are hardly expected to excel in - Tech. How else does one explain the rise of google, facebook, twitter et al which have consistently charted their own course in the way they defined their IT need that lent scant respect to the industry conventions. If any one can metamorphosise, it is the like of Cisco for it has been the darling of the start up from the dot com boom to bust times to the time of the Internet of Everything. They are at the heart of the tipping point transformational change that is shattering business models , thinking conventions , rapid adoptions and unheralded and uncharted terrains - Trust their leadership to come up with what one of their leads famously coined - Doing Both - Innovating Whilst Creating New Uncontested Blue Oceans - Cisco has an opportunity to be the rainmaker of the next quarter of a century. - Space they said long back - is the final frontier - that's the next stop from the heady heights of the cloud !!on May 14, 2014