At its financial analysts' conference Tuesday, Cisco Systems Inc. (Nasdaq: CSCO) spent a lot of time painting a big picture of a future that includes architecture-level sales and an expansion into 30 adjacent markets.
It's all part of Cisco's ongoing plan to seize market transitions at an early stage: These days, that means a focus on cloud computing, video, and mobility. (See BT, Cisco Claim Cloud Coup.)
But the company also provided some snippets that made aspects of its business a little clearer, or were just plain interesting. Here's a selection of notable points that arose during the day.
Cisco wanted to partner with HP and IBM. Of course, Cisco ended up annoying both of them by getting into the server market. (See Cisco: Yep, HP's a Competitor.)
But it didn't have to be that way. CEO John Chambers said HP Inc. (NYSE: HPQ) and IBM Corp. (NYSE: IBM) turned down Cisco's partnership overtures a few years ago, when Cisco first decided to tilt its data center plans towards virtualization and what's now called cloud computing.
"I still firmly believe it is in IBM's best interest to work with us. That door is firmly open," he said during an afternoon session.
The same point came up during a press luncheon. Chambers mentioned that Cisco doesn't want to sell storage gear and is happy to provide it through partners. He then added: "I could have done without servers as well, if we'd gotten as tight a partnership as I wanted with an IBM or an HP."
UCS is underway. Three service providers are going all-in with the Unified Computing System (UCS), adopting Cisco's full plan for the data center, said Rob Lloyd, Cisco's executive vice president of operations. One of them, Savvis (Nasdaq: SVVS), got announced yesterday. (See Savvis Gets Cloudy With Cisco.)
Sticking to '12 to 17 percent.' That's still Cisco's projection for long-term revenue growth, and it still bothers financial analysts.
One thing worth noting, though: Analyst Simon Leopold of Morgan Keegan & Company Inc. pointed out during the Q&A session that the growth rate depends on which year you start with -- the weak 2009 figures would make 17 percent growth easy to reach, for instance.
Cisco responded by saying the percentage is meant to reflect growth during normal business conditions and shouldn't be attributed to a particular starting point. CFO Frank Calderoni gave this breakdown of where all that growth is expected to come from:
Table 1: Adding Up to "12 to 17 Percent"
Number of % points of growth
Current Cisco products in their current markets
9 - 11
Growth into "market adjacencies"
1 - 3
Revenues from new services
2 - 3
Cisco won't acquire for services. That "new services" line in the table consists of Cisco doing consulting kinds of jobs, helping customers use the network to change their business processes. Cisco has 5,000 people handling services, but Chambers said the key will be to work with partners.
"We believe the right approach for this market isn't a standalone business. We think that vertical integration might be nice for some companies. But we'd much rather partner" with companies such as Accenture , Capgemini , Tata Consultancy Services Ltd. , or Wipro Ltd. (NYSE: WIT), he said. "But you will see us take more project managment responsibility along with our partners."
Flip means business. Cisco considers its Pure Digital Technologies acquisition -- source of the Flip video camcorder line -- to be a consumer and enterprise play. The proof is in the FlipShare software that allows easy sharing of video on social media platforms, Chambers said. That's opening new possibilities in collaboration, which, of course, is Cisco's hot button among enterprise trends.
"While everybody thought it was just a consumer move, we knew immediately that it was going to be a business move as well," Chambers said. (See Cisco's Latest Buy: Flippin' Sweet.)
No smartphones. No radio access network. People keep asking when Cisco will get into these areas, but what the company really wants is an area where it can grab a "sustainable advantage" because the market isn't moving fast enough, according to Chambers. Smarphones are out, then -- they're already moving plenty fast -- and the RAN doesn't offer many chances for Cisco to stand out.
CRS-1 gets bigger. While they didn't mention specific customers, executives seemed to go out of their way to mention an eight-chassis CRS-1. That would seem to imply that eight chassis is the new benchmark for the biggest CRS-1 installations out there. Recall that up to 72 CRS-1s can be hooked together, which was at least enough to impress the Guinness people. (See Cisco Grabs a Guinness.)
After talking with Simon Leopold, I think I better understand why Wall Street doesn't like the 12-17% figure. It's not quantifiable, oddly enough. Cisco is talking about 12-17% growth in normal business conditions -- meaning, it could actually be there now, were it not for the economy. That's tough to measure.
Put another way: IIRC, Cisco said yesterday that it enjoyed 16% CAGR in revenues from 2004 through 2008. But if you shift it to 2005 through 2009, you get 9%.
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