& 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
From The Founder
Download our complete guide to de-risking NFV deployment in 2016, including:
  • An eight-step strategy to deploying NFV safely, based on input from the companies that have already started virtualizing their production networks.
  • Interviews with leading executives at Colt, AT&T, Deutsche Telekom, Cisco, Nokia, ZTE, Ericsson and Heavy Reading.
  • Flash Poll
    Live Streaming Video
    Prepping for the Future: Upskill U Explained
    During this short kick-off video, Doug Webster, Vice President of Service Provider Marketing, Cisco, and Light Reading’s CEO & Founder Steve Saunders give an overview of Upskill U.
    LRTV Interviews
    AT&T Expert on the Key Pillars of UC

    4|29|16   |   03:58   |   (0) comments


    Vishy Gopalakrishnan, AVP of product marketing at AT&T, talks about the three developments that are making unified communications and collaboration secure and reliable for enterprise users.
    LRTV Documentaries
    LRTV Report: Mobile Core Innovation

    4|28|16   |   25:32   |   (0) comments


    Hear from multiple industry experts from Deutsche Telekom, SK Telecom, Heavy Reading, Huawei, Cisco, Ericsson, Nokia, NEC and many more about developments in the mobile core as operators virtualize their IMS and evolved packet core systems and prepare for a 5G world.
    LRTV Huawei Video Resource Center
    NFV World Congress Highlight

    4|26|16   |     |   (0) comments


    The highlight of the NFV World Congress contains exciting telecom news. Join us for an inside look at Huawei's ICT 2020 plan and its latest collaboration with industry leaders.
    LRTV Interviews
    Unified Comms Finds Its Voice

    4|25|16   |   03:44   |   (0) comments


    Peter Quinlan, VP of UCC Product Management at Tata Communications, talks about the evolution of the unified communications and collaboration services sector and how voice is now a big part of current developments.
    LRTV Documentaries
    So... What Do We Do Now?

    4|25|16   |   03:24   |   (0) comments


    After a long hiatus, Max Dingman, the CEO of a GeeGhiz, returns for a motivational board room pep talk.
    LRTV Documentaries
    NAB 2016 Highlights

    4|21|16   |     |   (0) comments


    Light Reading's Cable/Video Practice Leader Alan Breznick climbs down from the slots to tell us about the latest news in broadcast technology at NAB 2016 in Las Vegas.
    Between the CEOs
    CEO Chat: Deepfield's Craig Labovitz

    4|21|16   |     |   (0) comments


    In this latest installment of the CEO Chat series, Craig Labovitz, co-founder and CEO of Deepfield, sits down with Light Reading's Steve Saunders in Light Reading's New York City office to discuss how Deepfield fits in with the big data trend and more.
    Shades of Ray
    Leading Lights 2016: Shortlists Announced

    4|20|16   |   0:53   |   (0) comments


    The judging is over and the Leading Lights 2016 shortlists have been published -- you can see who made the cut by clicking on this link.
    LRTV Custom TV
    Introducing MulteFire – Qualcomm at MWC 2016

    4|18|16   |   3.29   |   (0) comments


    MulteFire is the latest option for using LTE in unlicensed spectrum. As oppose to its close 'siblings', LAA and LTE-U, MulteFire operates solely in unlicensed spectrum, which enables it to offer the best of two worlds – LTE-like performance with WiFi-like deployment simplicity. In this interview, Sanjeev Athalye, Sr. Director, Product Management at Qualcomm ...
    Between the CEOs
    CEO Chat: Grant Van Rooyen of Cologix

    4|18|16   |     |   (0) comments


    Grant van Rooyen, president and CEO of Cologix, sits down with Steve Saunders, founder and CEO of Light Reading, in the vendor's New Jersey facility to offer an inside look at the company's success story and discuss the importance of security in the telecom industry.
    LRTV Huawei Video Resource Center
    ONS 2016 – Demonstration of Huawei's NetMatrix Multi-Vendor SDN Orchestrator

    4|15|16   |     |   (0) comments


    This demonstration shows how Huawei's NetMatrix SDN Orchestrator (SDN-O) addresses an operator's core service agility needs for services spanning multi-domain, multivendor networks: it includes a demonstration of:
    - Rapid New Service Design: using YANG to model a complex example of multi-domain, multivendor L3VPN network connectivity service that ...
    LRTV Custom TV
    AT&T Wants to Own North Carolina

    4|15|16   |     |   (1) comment


    Venessa Harrison, president of North Carolina for AT&T, tells how the company will expand its GigaPower service beyond the seven N.C. cities it already serves.

  • This blog, sponsored by AT&T, is the second part of a ten-part series examining next-generation broadband technologies titled "Behind the Speeds."
  • Upcoming Live Events
    May 23, 2016, Austin, TX
    May 23, 2016, Austin Convention Center
    May 24-25, 2016, Austin Convention Center, Austin, TX
    September 13-14, 2016, The Curtis Hotel, Denver, CO
    December 6-8, 2016,
    June 16-18, 2017, Austin Convention Center, Austin, TX
    All Upcoming Live Events
    Infographics
    A new survey conducted by Heavy Reading and TM Forum shows that CSPs around the world see the move to digital operations as a necessary part of their overall virtualization strategies.
    Hot Topics
    Ultra-Broadband Summit, Hong Kong
    Iain Morris, News Editor, 4/27/2016
    WiCipedia: Woman Cards & Bitch Switches
    Sarah Thomas, Director, Women in Comms, 4/29/2016
    FCC Poised to Re-Regulate Wholesale Access
    Carol Wilson, Editor-at-large, 4/28/2016
    Amazon AWS Reports $2.6B Quarterly Revenue, Up a Colossal 64%
    Mitch Wagner, West Coast Bureau Chief, Light Reading, 4/28/2016
    Mitel Asks: What Time of Day Do You Shower?
    Mitch Wagner, West Coast Bureau Chief, Light Reading, 4/25/2016
    Like Us on Facebook
    Twitter Feed
    BETWEEN THE CEOs - Executive Interviews
    In this latest installment of the CEO Chat series, Craig Labovitz, co-founder and CEO of Deepfield, sits down with Light Reading's Steve Saunders in Light Reading's New York City office to discuss how Deepfield fits in with the big data trend and more.
    Grant van Rooyen, president and CEO of Cologix, sits down with Steve Saunders, founder and CEO of Light Reading, in the vendor's New Jersey facility to offer an inside look at the company's success story and discuss the importance of security in the telecom industry.
    Animals with Phones
    Live Digital Audio

    Of all the tech companies in the Valley, Intel has made the most aggressive commitment to building a diverse and inclusive workplace culture. It's doing so by taking concrete, measurable steps, making a large financial investment and through a commitment to complete transparency about its progress. In this radio show, WiC Director Sarah Thomas will be joined by Shlomit Weiss, Intel's Vice President, Data Center Group, and General Manager of Networking Engineering, who will share with us why Intel is tackling this huge challenge, how and to what effect. She will also discuss her unique experiences leading development of Client SOC development in the past and today leading development of all of the chipmaker's silicon hardware for networking IPs and discrete devices and managing a team of 600 engineers across Israel, Europe and the US.