Don’t bet against Cisco in market transitions: Chambers

John Chambers CiscoNEW ORLEANS – At a time where his company is facing criticism for its recent performance, particularly in its public sector business and its core switching market, Cisco Systems CEO John Chambers kicked off the company’s Cisco Partner Summit 2011 conference here with a fiery defense of Cisco’s future.

The executive’s thesis: Cisco has faced these kinds of challenges in the past, and has always found growth out of them.

Two prime examples: Cisco’s investments going through and coming out of the dot-com bubble burst in 2001; and the development of its convergence strategy that has made it a powerhouse in the voice market.

Of the latter, Chambers quipped that competitors and pundits proclaimed Cisco was doomed to fail because it “couldn’t even spell telephony.” But nearly a decade later, that voice/data network convergence message has evolved into a collaboration story that continues to drive strong growth for Cisco and its partners.

“We may not have been able to spell [telephony,] but we sure know how to own a market, don’t we?”  Chambers said with a smile.

Another example: Chambers said competitors predicted Cisco would be “one and done” in the data centre market, but today its Cisco Unified Computing System business is growing at an almost 60 per cent clip.

“Together, we almost always become number one,” Chambers told partners.

Part of owning a market is knowing when to show up, he asserted, mentioning repeatedly that “market transitions wait for no one,” and detailing how the company has “doubled up” on wise investments in times when markets were underperforming. Particularly, he highlighted the company’s investments in Asia in 1998 and in the service provider in 2001, both of which were seen as troubled. Today, Asia and emerging markets are still a growth engine for Cisco, while service provider is now 35 per cent of the company’s business.

Chambers also focused on the company’s innovation capabilities – noting that the company puts 13 per cent of its revenues — $5.3 billion (U.S.) last year – into research and development.

And then there are acquisitions, a field where Chambers asserted the company’s expertise and abilities are unparalleled. For example, he said, the former Tandberg business has exploded after its integration into Cisco’s collaboration business.

Some of the biggest alarm bells from the company’s most recent quarter were around the performance of its core switching business, a longtime engine for the company. But Chambers defended the company’s strategy in the space, saying that its broader architectural approach would be a differentiator against rivals who may beat it on one feature or another. He asserted that the ability of channel partners to build out a full architecture with applications like collaboration and video on top would provide a differentiator. Having that architectural approach to the core of the network enables that broad category of “new products” that now make up almost a third of the company’s revenues, and represent an additional uplift of 50 per cent in partner services, he said.

“Where we need to, we will compete on price/performance, but it really is about the architectural plays and how they all tie together,” Chambers told partners.

He also took rivals to task for “FUD” around market share in switching, showing long-term charts comparing quarter-over-quarter market share details that were relatively flat amongst Cisco and rivals HP and Juniper Networks.

Chambers said he wanted all the company’s partners focusing on five broad priorities:

  1. Core routing and switching;
  2. Collaboration;
  3. Data centre, virtualization and cloud;
  4. Business and technology architectures; and
  5. Video

While he regards those five as key table stakes, he said there’s plenty of opportunities for partners to differentiate in the marketplace by choosing one or more of the “next 20-plus” priorities beyond or within those big five.

In all, Chambers said there’s a $170 billion (U.S.) opportunity in the market today for Cisco, with that number growing to $210 billion over the next few years as the company follows what it sees as the next major market transition, the move towards “the networked economy 2.0.”

“The great news is that the network is going to be the platform for transforming all forms of IT,” Chambers said, adding that it’s a move Cisco predicted and built for, and that competitors are now either jumping on or trying to undermine through commoditization.