Light Reading

Cisco Charts a New Future in IT

Craig Matsumoto
News Analysis
Craig Matsumoto
12/7/2012
50%
50%

Cisco Systems Inc. (Nasdaq: CSCO) thinks it's time to take over the IT sector.

The company is launching a new strategy to emphasize service and software, taking advantage of the fact that IT has become more about the network than about the computer. That transition has been apparent for years now, and Cisco thinks it's time to pounce, to complete the transition to an IT vendor as opposed to a communications vendor.

"Most of our sales in the future will be heavily integrated with services," CEO John Chambers said in announcing the strategy on Friday. "Services are going to go from 20 to 21 percent of our business to 25 and beyond that if we execute right."

The percentage numbers might not seem impressive, but they represent the start of a major shift in Cisco's business. Going beyond routers and network architectures, Cisco now wants to provide an "Internet of everything," comprising major projects, such as water delivery for cities or smart highways populated by networked cars.

A new marketing campaign, with the theme "Tomorrow starts here" launches on Monday to back up the new philosophy. The campaign will be big and relentless, Chambers promised, full of interactive ads and social media.

Running the numbers
More subtly, the services focus means accepting that Cisco is no longer a hot growth company.

"We comfortably believe our long-term growth is in the 5 to 7 percent range," Chambers said. "For the last 10 years, we've been in the high end of that range." (Put more cynically, it means Cisco fell short of the 12 to 17 percent growth it predicted not so long ago.)

What's important about that 5 to 7 percent is to get revenues to occur more smoothly, Chambers said. By shifting emphasis to services and software, the company hopes to develop a base of recurring revenues to do just that.

Services are already in position there, representing $10 billion per year in revenues. The services business has been growing at 10 percent per year for 12 years, with gross margins of 65 percent, Chambers said.

Cisco's software sales will have to change, however, Chambers said. Software will continue to be tightly integrated with Cisco's hardware and Application-Specific Integrated Circuits (ASICs), but Cisco will have to learn how to charge for it on a recurring basis, letting customers pay for it as they add capabilities or expand networks.

Chambers thinks Cisco has a shot at doubling its standalone software revenues to $12 billion per year in the next three to five years.

Then there's security. As kind of a sub-goal within the larger IT goal, Chambers has tasked Senior Vice President Chris Young with trying to turn Cisco into the industry's top security player, increasing market share to 50 percent from the current 32 percent. It's a risky attempt that might not work out, Chambers admitted out loud Friday. Chambers's endgame
So, what makes Cisco belive it can pull this off? In Friday's talk, Chambers set the stage by pointing out, as he often does, that Cisco has managed to overtake the competition in many other major market transitions, the most recent being the company's entry into data-center servers.

In the services area, Chambers is playing off what he's been touting as Cisco's strengths: an ability to think big, an affinity for creating interwoven architectures of hardware and software, and really close ties with governments and the largest enterprises.

It's hard not to draw parallels to IBM Corp. (NYSE: IBM), which transformed from a computer company into more of a consultancy. Chambers, of course, previously worked at IBM and at Wang Laboratories, two technology giants whose power eventually crumbled.

The new strategy, whether it works or not, is likely to become Chambers's legacy at Cisco. He has told the media he's expecting to retire within four years.

— Craig Matsumoto, Managing Editor, Light Reading

(0)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Flash Poll
From The Founder
Network architects aiming to upgrade their networks to support agile, open, virtualized services in the 21st century need to consider new criteria when choosing between technology suppliers.
Live Streaming Video
BTE 2015 Sponsor Keynote: HP
Dr. Prodip Sen, CTO, Network Functions Virtualization, HP
LRTV Documentaries
IoT in Action

6|30|15   |   1:39   |   (5) comments


Two co-workers discuss the benefits of IoT technology.
LRTV Interviews
Ericsson Opens Up on OPNFV

6|30|15   |   14:16   |   (0) comments


Martin Bäckström, VP and head of industry area Datacom at Ericsson, talks to Light Reading founder and CEO Steve Saunders about the emergence of OPNFV, the importance of standards and Ericsson's OPNFV plans.
LRTV Custom TV
NetNumber Founder Discusses NFV/SDN Impact on SP Networks

6|26|15   |   4:15   |   (0) comments


NetNumber Founder Doug Ranalli examines why SPs need a new network infrastructure for service agility. While NFV and SDN are the tools, the old ways of thinking about signaling control are inhibitors. Doug provides his recommendations.
LRTV Custom TV
Orchestrating NFV vCPE Services Across Multivendor Networks

6|26|15   |   5:46   |   (0) comments


Nirav Modi provides an overview of vCPE, the fastest-growing NFV use case, showing how Cyan's Blue Planet orchestrates vCPE services across a multivendor infrastructure to rapidly deliver new managed services for business customers.
LRTV Custom TV
ZTE at LTE Summit Amsterdam 2015

6|26|15   |     |   (0) comments


As one of the leading global telecommunications providers, ZTE presented its cutting-edge technology at LTE World Summit 2015 in Amsterdam. On display at ZTE's booth were the latest R&D achievements in wireless, 5G development, HetNet, deep convergence of FDD and TDD, and RCS/IMD/iSDN/vCN.
LRTV Documentaries
OPNFV Director Opens Up on Women in Tech

6|25|15   |   3:25   |   (0) comments


Heather Kirksey, the director of the OPNFV, gets real about the gender disparity in open source and standards and discusses how we can change both the conversation and the gender dynamics.
LRTV Custom TV
Symantec's Service Provider Security Strategy

6|24|15   |   7:06   |   (0) comments


Didi Dayton explores Symantec's emerging enterprise security strategies for service providers. Highlights include 'killing the password,' self-defense, advanced analytics and adaptive response in a service provider architecture.
Between the CEOs
Debating Network Evolution With Cisco's Cedrik Neike

6|23|15   |   12:54   |   (2) comments


Cedrik Neike, SVP of Global Service Provider, Service Delivery, at Cisco, talks to Light Reading founder and CEO Steve Saunders about solving service provider customer problems in a virtualized, DevOps world, including multivendor support and the future of network procurement.
LRTV Documentaries
Vodafone: What's Good for Moms Is Good for Business

6|23|15   |   3:04   |   (3) comments


Megan Doberneck, the general counsel for Vodafone Americas, discusses her company's progressive maternity policy, explains why promoting women in tech is good business and offers some some good advice for any women in the industry.
LRTV Interviews
NFV: Ready for Prime Time

6|23|15   |   05:09   |   (1) comment


At BTE 2015, Vip mobile CTO Dejan Kastelic talks about how NFV is ready for the real world and how Telekom Austria is introducing centralized resources for its group operations.
LRTV Documentaries
Tykes Talk Tech

6|22|15   |   02:30   |   (9) comments


What does optical fiber look like? When will 5G arrive? What's the WiFi password at Ikea? Light Reading sat down with three 8-year-olds to answer some of the communications industry's most burning questions...
LRTV Huawei Video Resource Center
Huawei Partners With TDC for World's First Early DOCSIS 3.1 Field Test

6|22|15   |   3:06   |   (0) comments


In a move to enhance user experience, Denmark's TDC aims to become an early adopter of DOCSIS 3.1. In partnership with Huawei, TDC recently ran the world's first field tests on its coax network that reached speeds nearing 1 Gbit/s.
Upcoming Live Events
September 16-17, 2015, The Westin Galleria Dallas, Dallas, TX
September 29-30, 2015, The Westin Grand Müchen, Munich, Germany
October 6, 2015, The Westin Peachtree Plaza, Atlanta, GA
October 6, 2015, Westin Peachtree Plaza, Atlanta, GA
October 14-15, 2015, New Orleans Ernest N. Morial Convention Center, New Orleans, LA
All Upcoming Live Events
Infographics
Hot Topics
Staying Productive With My Office-in-a-Bag
Mitch Wagner, West Coast Bureau Chief, Light Reading, 6/25/2015
Who's Feeding Fiber to LinkNYC Hotspots?
Mari Silbey, Senior Editor, Cable/Video, 6/29/2015
Colt to Jettison Ailing IT Business
Iain Morris, News Editor, 6/30/2015
Eurobites: Activist Investor Takes Stake in AlcaLu
Paul Rainford, Assistant Editor, Europe, 6/30/2015
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
Casa Systems has been going from strength to strength over the last couple of years. In 2013, it became the first vendor to ship an integrated CCAP device -- the ...
Cedrik Neike, SVP of Global Service Provider, Service Delivery, at Cisco, talks to Light Reading founder and CEO Steve Saunders about solving service provider customer problems in a virtualized, DevOps world, including multivendor support and the future of network procurement.
Cats with Phones