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
From The Founder
Light Reading sits down at CES with the head of Cisco's service provider video business, Conrad Clemson, to discuss how NFV and cloud security relate to video, the challenge of managing 4K/8K traffic, the global expansion of Netflix and virtual reality.
Flash Poll
Live Streaming Video
CLOUD / MANAGED SERVICES: Prepping Ethernet for the Cloud
Moderator: Ray LeMaistre Panelists: Jeremy Bye, Leonard Sheahan
LRTV Custom TV
Join Us at the Digital Operations Transformation Summit

2|4|16   |   03:52   |   (0) comments


The Digital Operations Transformation Summit on February 21, 2016 at the Crowne Plaza Barcelona Fira Centre will bring together 50 senior executives to engage in a unique debate on the opportunities and challenges presented by the transformative evolving digital landscape. RSVP now at events@lightreading.com.
LRTV Custom TV
Making the Test: ADVA Ensemble Connector vs. Open vSwitch

2|4|16   |   01:28   |   (0) comments


Light Reading, in partnership with EANTC, recently tested ADVA's Ensemble Connector, which replaces open vSwitch and offers carrier-grade capability and interoperability. The test results strengthen ADVA's credibility as a provider in the virtualization space.
LRTV Custom TV
Bridging the Gap Between PoCs & Deployment in NFV

2|4|16   |   31:50   |   (0) comments


Charlie Ashton of Wind River presents the keynote at Light Reading's 2020 Vision executive summit in Dublin.
Between the CEOs
CEO Chat With Mike Aquino

2|3|16   |   17:34   |   (0) comments


The former CEO of Overture Networks, Mike Aquino, discusses why truly open virtualization solutions provide service providers with the greatest choice.
Shades of Ray
MWC: Buckle Up for 5G & the IIoT

2|2|16   |   02:28   |   (0) comments


This year's Mobile World Congress looks set to be a 5G land grab and a chance to get down and dirty with the Industrial Internet of Things (IIoT) – but what will the 5G discussions actually be about?
LRTV Custom TV
Case Study: Building China's Next-Gen TV Networks

2|2|16   |   5:01   |   (0) comments


With over 2 billion viewers worldwide, Shenzhen Media Group is one of China's largest content producers. By partnering with Huawei and Sobey, SZMG was able to modernize media operations with the Converged News Center, a production studio that is a model for next-generation workflows.
LRTV Custom TV
Quad Channel Modulator Driver with 46 Gbaud Capability from MACOM

1|28|16   |     |   (0) comments


MACOM's MAOM-003427 is the industry's first surface-mount modulator driver with 46 Gbaud capability to support next generation 200G and 400G applications.
LRTV Custom TV
Video Infographic: Validating Cisco's NFV Infrastructure

1|26|16   |   02:24   |   (1) comment


We all know that the network of the future will be virtual, but when will virtual become a reality? This video infographic covers the four key areas in which Light Reading, in partnership with EANTC, tested Cisco's NFV infrastructure: performance, reliability, multi-service capabilities and single pane of glass management.

For the full report, see

Between the CEOs
CEO Chat With Phil McKinney, CableLabs

1|22|16   |   13:36   |   (1) comment


At CES in Las Vegas, we met with Phil McKinney, CEO of CableLabs. Phil provides an update on the rollout of DOCSIS 3.1, his views on the future of open source and how consumer interest in virtual reality could affect network traffic.
Between the CEOs
Ericsson CTO on the Changing Telecom Market

1|21|16   |   10:26   |   (0) comments


At CES 2015, CTO of Ericsson, Ulf Ewaldsson, sits down with CEO of Light Reading, Steve Saunders, to discuss the changing telecom market, the new partnership with Cisco and the future of the telecom industry.
LRTV Interviews
Ireland's Data Dream

1|21|16   |   14:31   |   (0) comments


Host In Ireland president Gary Connolly tells Light Reading's Steve Saunders about the role Ireland is playing in hosting data for the world's largest organizations.
LRTV Custom TV
Brocade Keynote: Transitioning to the New IP

1|20|16   |   27:23   |   (0) comments


At 2020 Vision in Dublin, Andrew Coward, VP of Service Provider Strategy at Brocade, presents the transition to the New IP.
Upcoming Live Events
March 10, 2016, The Cable Center, Denver, CO
April 5, 2016, The Ritz Carlton, Charlotte, NC
May 23, 2016, Austin, TX
May 24-25, 2016, Austin Convention Center, Austin, TX
All Upcoming Live Events
Infographics
Cisco's latest VNI numbers suggest the world will be using 366.8 exabytes of data on smartphones and Internet of Things devices, up from 44.2 exabytes, in 2015.
Hot Topics
Alphabet Is Serious About Google Fiber
Mari Silbey, Senior Editor, Cable/Video, 2/1/2016
Did Juniper Pay 'Peanuts' for BTI?
Mitch Wagner, West Coast Bureau Chief, Light Reading, 2/2/2016
Google's 5G Radio Ambitions Are Expanding
Dan Jones, Mobile Editor, 2/5/2016
How Data Center Outsourcing Fuels AT&T NetBond Growth
Carol Wilson, Editor-at-large, 2/3/2016
3.5GHz Startup Gets $22M for Small Cells
Dan Jones, Mobile Editor, 2/2/2016
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
The former CEO of Overture Networks, Mike Aquino, discusses why truly open virtualization solutions provide service providers with the greatest choice.
As anyone who knows me will tell you, I like to think I know a fair bit about this next-gen-comms malarkey, but there's nothing like an interview with one of the ...
Animals with Phones
Happy Groundhogs for Technology Day! Click Here
Live Digital Audio

Broadband speeds are ramping up across Europe as the continent, at its own pace, follows North America towards a gigabit society. But there are many steps to take on the road to gigabit broadband availability and a number of technology options that can meet the various requirements of Europe’s high-speed fixed broadband network operators. During this radio show we will look at some of the catalysts for broadband network investments and examine the menu of technology options on offer, including vectoring and G.fast for copper plant evolution and the various deployment possibilities for FTTH/B.