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Buying Into the New Cisco

Craig Matsumoto
Valley Wonk
Craig Matsumoto
12/11/2012
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6:00 AM -- If it's true that tomorrow starts here, as the new Cisco Systems Inc. (Nasdaq: CSCO) campaign claims, then which tomorrow is it?

Because on Monday, the same day Cisco launched that ad campaign, Pica8 Inc. announced a reference design combining a commodity switch with software-defined networking (SDN). For some people, that's the sort of development that hammers another nail into the traditional router's coffin.

So, while "tomorrow" could be the blossoming of Cisco into a whole new business, it could equally be the start of the SDN commoditization that some have predicted since they first heard about OpenFlow.

If it's the latter, Pica8 isn't even the start. Intel Corp. (Nasdaq: INTC) announced its own SDN-minded reference design, a switch called Seacliff Trail, in September.

It's no given that the existence of SDN means that all routers and switches commoditize down to zero. But if it does, Cisco's "tomorrow" offers a way out.

One thing separating Cisco from its rivals, to hear CEO John Chambers tell it, are its deep relationships with governments -- national and civic leaders. If Cisco really wants to sell more services into their big projects, such as smart highways and smart grids, maybe it should stockpile some technologies, or even some consulting knowledge, outside the traditional IT circles.

Whichever directions it heads in, Cisco seems intent on acquiring its way there, at least partially.

"We have gone too long without any major M&A," CEO John Chambers said during Friday's analyst day in New York. He said Cisco has left money on the table, turning down perhaps a 1 percent gain in revenues in recent years by not expanding its horizons. "You will see us more active in the M&A side."

Chambers is probably talking about acquiring more pieces like Meraki and NDS. But it would be telling if the company took a really bold step in some lateral direction. I don't even know what it takes to be a better urban planner, but if there's a way to merge that expertise with technology, maybe that's where the allegedly new Cisco ought to look.

That's a longshot, though. For all the talk of software and services, it's likely Cisco's moves still revolve around the preservation of the switch/router empire. Tom Nolle of CIMI Corp. has similar reservations; "the big risk for Cisco is continued self-delusion," he wrote Monday, in a blog entry about Cisco's machine-to-machine (M2M) aspirations.

— Craig Matsumoto, Managing Editor, Light Reading

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