Chambers: Cisco Transition Is Growth Mode

Last Friday, Cisco Systems Inc. kicked off its financial analyst conference (FAC) with CEO John Chambers outlining its strategy for the next five years, while discussing Cisco’s market challenges and successes on the road to it becoming a software and services IT company.

In the past, Cisco has been criticized for being slow to move to a services approach, but Chambers was optimistic on Cisco’s strategy and felt Cisco has what it takes to transition from “a communication provider to an IT provider … if we execute well.”

Chamber’s confidence in making that transition is aligned with Chambers’s goal to make Cisco the “number one IT company.” Channelnomics knows any number one position requires help from the channel, and to Chambers’s credit, he cited Cisco’s partner community as one of the key sources both driving Cisco’s new market spaces and helping Cisco focus on where to lead.

Most of Chamber’s discussion mirrored much of what was said during Cisco’s Q1 and FY 2013 report, but Chambers spent a good percentage of time showing how Cisco’s past successes and technological transitions have taken a few years, but were strategic and have resulted in Cisco dominance in these spaces. Chambers argues the software and services model is no different from any previous transition the company has successfully undertaken. ”We’ve played this game, 5 or 6 times already,” joked Chambers.

Cisco has outlined three critical areas its focusing on and its level of investment into that technology and extrapolated its revenue estimates based on quadrupled Q1 earnings:

• Driving Growth: Cisco plans to “stay the course” with its efforts in cloud, mobility and video. Collectively, this makes up about $12 billion in revenue.
• Invest for Growth: Cisco will be adjusting its investments in services, security, software and emerging markets as time goes on, but will focus mainly on building services into a $10 billion business, with emerging markets and software trailing behind at $7.5 and $6 billion. Chambers reinforced its focus on software by boasting that in 3-5 years, Cisco will attempt to double that $6 billion software figure. Aligned with software is the security space, wherein Chambers admitted ” you argue we could’ve unbundled our software from the hardware earlier,” but  will now lead with its edge-level protection as software-based security option.
• Future Growth:  Chambers touched on the idea of the “Internet of everything,” a world of connected devices that will need its own platform to drive that high-level of connectivity. Naturally, Cisco wants to play in that space. Chambers outlined the equation, as “ASCIS (on-silicon technology) + hardware + software + services = Intelligent IP network.”  A unified data center is also part of its platform strategy.

“It’s all about catching a market in transition and moving it forward,” and according to Chambers’s, its single ethos is what will help Cisco offer that competitive  transition to customers in a unified “non-siloed approach.”  It’s a “different breed of application and platform,” quipped Chambers, and because “we are in the data center now, our IT pulls through our communication technology.”  This layering approach is the “architectural play” Chambers cites as the focus beyond Cisco’s current-day software efforts.

“Something we haven’t communicated very well is that we capture proprietary capabilities and we [assimilate] their IP quickly.” Chambers promised Cisco continues to focus on its speed of aquistion integration because it helps them hit a high level of market percentage. Chambers said it will enter any market where “we have a reasonable probability of 40 percent market share or more,” thus the race to “buy and build.”

For existing markets, Chambers said Cisco would leave any market that it cannot maintain a 20 percent minimum. This balancing act is also what Chambers points to as an example of forward thinking for the future of services – and what kind of performance Cisco expects out of its emerging markets division. Chambers was quick to note, however, that this success is due in part to its channel, which Chambers happily noted competitors like Huawei could not steal away.

With Cisco’s acquisitional aspirations for Cardien Technologies and the combination of its cloud and managed services program, it’s fair to say Cisco is on track for delivering that partner-centric service future.

However, Chambers focused so heavily on this 3-5 year transitional idea that it may behoove Cisco to think about how transitional changes in the IT space — both today and in the future — may speed up. That may narrow the window of opportunity for market capitalization — and today’s market is less forgiving to those that do not plan ahead. Planning for an accelerated rate of change in the near future (not just planning to be on board with future technology) should be a priority for Cisco since Cisco cannot afford to neglect its own agility as a key asset in driving the goal to become the “number one IT provider.”