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Chambers Caught in 90s Deja Vu

Carol Wilson
2/12/2014
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Despite the expected revenue weakness in the fiscal second-quarter results announced today, Cisco CEO John Chambers says 2014 feels like the mid-1990s to him -- with a boom about to come. (See Revenue, Income Slide In Cisco's Q2 2014 and Cisco Set for Sales Slump.)

On today's earning call, the upbeat exec said that this year will be the inflection point for the "Internet of Everything," and that Cisco Systems Inc. (Nasdaq: CSCO) is well positioned to benefit from helping enterprises reshape themselves for that technology trend.

"This reminds me of the mid-1990s, just before the Internet and e-commerce moved from being a tech thing to something impacting all businesses," Chambers said. "There is a lag between thought leadership and early adoption, and we are still in the early phases of this."

Cisco has been touting the Internet of Everything -- a term encompassing mobility and machine-to-machine communications -- for six years but is only now finding interest in it growing. "Six years ago, we had to buy someone a drink to talk about it. Now they want to buy us dinner."

Pegging the market size at $19 trillion, Chambers said Cisco will capture, not only equipment sales, but also substantial consulting services revenues, as it moves to "outcome-based" approaches. He cited the vendor's efforts in Israel, where it is building a country-wide ultra-high-speed fiber optic network and working with the government on jobs, healthcare, education, and more.

Chambers also attributed the 12% slide in sales to service providers to a product cycle and timing issue. While older products such as cable video and set-top systems are approaching the end of their lifespan, the next generation of products -- Cisco's approaches to network and datacenter virtualization -- is emerging. (See Cisco Goes Soft With APIC, Intercloud Announcements and Cisco's ACI Gets Physical With SDN.)

Notably, cable video revenue declined 20%, contributing significantly to the overall SP slide.

Cisco also has come under some fire for an approach to software-defined networking that seems to emphasize an end-to-end, single-vendor architecture as the best approach, versus the best-of-breed interoperability that service providers say they are seeking with virtualization.

Ever the salesman, Chambers told financial analysts on the earnings call that Cisco's "architectural" approach to building the next generation of datacenters and networks will enable the Internet of Everything to take off. Past efforts have failed "because people try to do it one step at a time." Instead, Cisco will deliver a complex solution that encompasses mobility, datacenter, analytics at the edge, collaboration, security, and more.

The competition, he said, is still doing things piecemeal -- and he lumps both Cisco's traditional competitors and the startups tackling next-generation technologies into that category.

— Carol Wilson, Editor-at-Large, Light Reading

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DHagar
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DHagar,
User Rank: Light Sabre
2/14/2014 | 5:50:12 PM
Chambers Caught in 90s Deja Vu
Totally agree, GregW333.  It will only become a market if it aggregates.  Cisco's vision would be like someone trying to advance the use of electricity by building their own utility solution.  I think any IOT market will be the result of consumer/commercial use.

That's why I fully agree with Carol.  I think Chambers thinks Cisco has a vision that will grow and create the market he is trying to "sell". 

DHagar
GregW333
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GregW333,
User Rank: Lightning
2/14/2014 | 5:21:48 PM
Re: Chambers Caught in 90s Deja Vu
I find these wild projections inane and unbecoming for both Cisco and Mr. Chambers.  Are they an act of desparation?  

IoT...what's a thing?  It's either NOthing or EVERYthing...a zero trillion dollar market or an infinite one.  

I'd like to know how billions of devices sending infrequent small packets are going to generate demand for high end routers?  Video...yes, IoT ...no?
Ray@LR
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Ray@LR,
User Rank: Blogger
2/14/2014 | 4:22:45 AM
Re: Wouldn't Be Surprised
Oh Mitch, looks like we are going to have some interesting discussions around what constitutes a great movie. Even a good one. Or just bad.

Scent of a Woman is one of the few movies I have ever considered walking out of.

 

And I didn't say there were none - Pulp Fiction, Fargo and LA Confidential would grace any decade.
DHagar
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DHagar,
User Rank: Light Sabre
2/13/2014 | 10:04:06 PM
Chambers Caught in 90s Deja Vu
I think you have hit the key issues that are weakening Cisco's market share, Carol.  It appears that Chambers is trying to define the market with his vertical solutions, rather than playing to it.

The internet of things, I believe, will become a reality, but it will not reach it's potential in contained and structured solutions.  I believe it will be, like the internet itself, the evolution of commercial and consumer use that will shape and grow the market.

I think Cisco is missing the boat in not figuring out more effective ways to take advantage of the trends; maybe that is contributing to their weaker financial growth.

DHagar
Carol Wilson
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Carol Wilson,
User Rank: Blogger
2/13/2014 | 6:43:17 PM
Re: Wouldn't Be Surprised
Mitch, innovation is one thing but at the height of the Internet, people were investing in companies that had no clear strategy on how they would ever make money, given that their products were being given away or sold at prices that had no hope of generating profits. 

You can innovate without being stupid. 
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
2/13/2014 | 6:40:11 PM
Re: Wouldn't Be Surprised
Carol Wilson - If the networking industry is to re-live the '90s, let's hope we've learned something from that era, when billions were invested (and lost) on companies, products and services for which there was no clear business case. 

That's how innovation works. Nine out of ten startups die, but the survivors add value. 

Pets.com went down the toilet, but we buy pet supplies from Amazon. The idea survived. 
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
2/13/2014 | 6:38:52 PM
Re: Wouldn't Be Surprised
Too few great movies? A Few Good Men, Scent of a Woman, The Fugitive, Remains of the Day, all of Kevin Smith's good movies, Four Weddings and a Funeral, Pulp Fiction, The Shawshank Redemption, Babe, Fargo, Jerry Maguire, Good Will Hunting, LA Confidential, Elizabeth, Saving Private Ryan, Shakespeare in Love, Titanic. 

Also, Starship Troopers. So maybe you have a point there. 

I loved the 70s. Great decade for plastic, polyester, hairspray and disco. 
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
2/13/2014 | 6:35:35 PM
Re: Wouldn't Be Surprised
Revenue is weak, but Cisco CEO John Chambers says 2014 feels like the mid-90s to him, with a boom yet to come. The boom, he says, is the "Internet of Everything."

The IoT will be big but I don't know that Cisco will necessarily be a winner. They're tied to legacy technology. 
Carol Wilson
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Carol Wilson,
User Rank: Blogger
2/13/2014 | 10:13:39 AM
Re: Wouldn't Be Surprised
If the networking industry is to re-live the '90s, let's hope we've learned something from that era, when billions were invested (and lost) on companies, products and services for which there was no clear business case. 

I'd give Cisco credit for having definitive strategy, although I don't know that the "architectural" approach is the best option. They have been pushing this Internet of Everything idea for a long time and they do seem to be maintaining a focus.

It's interesting to look back now at the telecom bubble and realize that at least half of the industry giants going into that era - Nortel, Siemens, Lucent, to name three -- were unable to navigate their way through significant technology shifts. The next wave of technology change may bury some other giants, but it doesn't look like Cisco will be one of them. 
Ray@LR
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Ray@LR,
User Rank: Blogger
2/13/2014 | 3:40:13 AM
Re: Wouldn't Be Surprised
Great post.

But don't forget the "better the devil you know" effect.... if in doubt, do you stick with Cisco? Plus you know it isn't going away any time soon and coirporate longevity is going to be important.

As a side note - I really hope it's not the 90s all over again. Terrible clothes, awful music, and not that many truly great movies. The 70s were much better, but then if Chambers ever says it's like the 70s all over again, well... that would be when no one ever got fired for buying from Big Blue, right?
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