& cplSiteName &

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
Light Reading’s Upskill U is a FREE, interactive, online educational resource that delivers must-have education on themes that relate to the overall business transformation taking place in the communications industry.
NEXT COURSE
Wednesday, July 27, 1:00PM EDT
The Changing Face of the Data Center World
Rodney M. Elder, Senior Solutions Architect, Equinix
UPCOMING COURSE SCHEDULE
Wednesday, August 3, 1:00PM EDT
The Central Office Re-Architected as a Data Center
Guru Parulkar, Executive Director, Open Networking Research Center, Open Networking Lab
Wednesday, August 10, 1:00PM EDT
Telcos & Open Source 101
Phil Robb, Senior Technical Director, OpenDaylight
Friday, August 12, 1:00PM EDT
The Role of Open Source in NFV
Jim Fagan, Director, Cloud Practice, Telstra
in association with:
From The Founder
The more things change, the more they stay the same for Juniper's next-gen comms solutions, and that's a good thing.
Flash Poll
Live Streaming Video
Charting the CSP's Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it's going from two industry veterans.
LRTV Custom TV
NetScout: Maximizing Enterprise Cloud for Digital Transformation

7|20|16   |   04:53   |   (0) comments


Light Reading Editor Mitch Wagner talks to NetScout CMO Jim McNiel about maximizing the benefits of enterprise cloud and digital transformation while minimizing potential pitfalls with a proper monitoring and instrumentation strategy.
Women in Comms Introduction Videos
Ciena's VP Offers a Career Crash Course

7|20|16   |   4:14   |   (0) comments


How did Ciena's Vice President of Sales, Angela Finn, carve out her career path? Simple, she tells WiC. She stayed true to her company, customers and principles. She shares her advice for women on how to be authentic and credible, as well as for companies that want to make a real change to their culture and practices.
LRTV Custom TV
NFV in 2016: Part 2 – Climbing the Virtualization Maturity Curve

7|19|16   |   06:56   |   (0) comments


Many of the initial use case implementations are single-vendor and self-contained. The industry is still climbing the virtualization maturity curve, needing further clarity and stability in the NFV infrastructure (NFVi) and greater availability and choice of virtualized network functions (VNFs). Interoperability between NFVis and VNFs from different vendors ...
Telecom Innovators Video Showcase
Versa Networks' Kumar Mehta on SD-WAN Managed Services

7|19|16   |     |   (0) comments


In Silicon Valley, Steve Saunders sits down with Versa's Kumar Mehta for an interview focused on why service providers are building SD-WAN managed services, and how Versa's telco customers are innovating.
LRTV Custom TV
Juniper Networks & The Evolution of NFV

7|19|16   |   06:01   |   (0) comments


Senior Juniper Networks executives talk to Light Reading Founder & CEO Steve Saunders about NFV developments and the recent independent evaluation by test lab EANTC of Juniper's Cloud CPE solution.
LRTV Interviews
CenturyLink Goes Beyond Managed WiFi

7|19|16   |     |   (0) comments


CenturyLink's managed WiFi allows enterprises, such as retailers and resorts, to track guest WiFi usage in order to help them better communicate with customers.
LRTV Interviews
AT&T Launches Network Functions on Demand

7|17|16   |   05:26   |   (0) comments


Roman Pacewicz, Senior Vice President, Offer Management & Service Integration, AT&T Business Solutions, discusses the operator's launch of its Network Functions on Demand service.
LRTV Interviews
Enterprise Pitch for Ciscosson

7|14|16   |   04:43   |   (0) comments


After seven months of near silence, Cisco and Ericsson executives publicly discussed details on their extensive partnership. Among the tidbits shared by Martin Zander, VP, group strategy programs, Ericsson, and Doug Webster, VP service provider marketing, Cisco: The partnership was initially launched to serve the service provider market, but is already gaining ...
Wagner’s Ring
Cisco Faces Up to Hypercloud Threat

7|13|16   |   02:42   |   (0) comments


Facebook, Amazon and Google mostly don't buy branded technology for their networks – they build their own. That's a threat to Cisco – and its competitors too – which face potentially dwindling demand for their product. Is Cisco up to the challenge? Light Reading went to the annual Cisco Live conference to find out.
LRTV Huawei Video Resource Center
Building a Better Connected Russia

7|13|16   |     |   (0) comments


At UBBS World Tour 2016, Alla Shabelnikova of Ovum shares the findings of a white paper outlining the challenges and opportunities of broadband rollout in Russia.
LRTV Huawei Video Resource Center
The Global Video Business

7|13|16   |     |   (0) comments


At UBBS World Tour 2016, Roger Feng of Huawei shares insights on the future of video business.
LRTV Huawei Video Resource Center
UBBS World Tour Moscow Highlights

7|13|16   |     |   (0) comments


At UBBS World Tour 2016 at Moscow, Huawei showcases its outstanding progress in video technology.
Upcoming Live Events
September 13-14, 2016, The Curtis Hotel, Denver, CO
September 27, 2016, Philadelphia, PA
November 3, 2016, The Montcalm Marble Arch, London
November 30, 2016, The Westin Times Square, New York City
December 6-8, 2016,
May 16-17, 2017, Austin Convention Center, Austin, TX
All Upcoming Live Events
Infographics
Five of the Top 10 most targeted countries in Check Point Software Technologies' global Malware & Threat Index for Q1 2016 are in Africa.
Hot Topics
SoftBank Muscles In on ARM in $32B Deal
Iain Morris, News Editor, 7/18/2016
Ericsson 'Doubles' Savings Goal as Sales Slump
Iain Morris, News Editor, 7/19/2016
Kevin Lo's Move to Facebook: Sign of Things to Come?
Patrick Donegan, Chief Analyst, Heavy Reading, 7/20/2016
Verizon's Next With VNFs
Carol Wilson, Editor-at-large, 7/21/2016
Facebook Gets Its Drone On
Ray Le Maistre, Editor-in-chief, 7/22/2016
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
There's no question that, come 2020, 5G technology will turn the world's conception of what mobile networking is on its head. Within the world of 5G development, Dr. ...
I've enjoyed interviewing many interesting people since I rejoined Light Reading, but William A. "Bill" Owens certainly takes the biscuit, as we say where I come from.
Live Digital Audio

Our world has evolved through innovation from the Industrial Revolution of the 1740s to the information age, and it is now entering the Fourth Industrial Revolution, driven by technology. Technology is driving a paradigm shift in the way digital solutions deliver a connected world, changing the way we live, communicate and provide solutions. It can have a powerful impact on how we tackle some of the world’s most pressing problems. In this radio show, Caroline Dowling, President of Communications Infrastructure & Enterprise Computing at Flex, will join Women in Comms Director Sarah Thomas to discuss the impact technology has on society and how it can be a game-changer across the globe; improving lives and creating a smarter world. Dowling, a Cork, Ireland, native and graduate of Harvard Business School's Advanced Management Program, will also discuss her experience managing an international team focused on innovation in an age of high-speed change.