John Chambers has picked a good time to step down as CEO of Cisco: He hasn't overstayed his welcome. (See Cisco's Robbins to Replace Chambers as CEO.)
The announcement Monday that Chambers had set a July 26 retirement date after 20 years in the top job, and named Chuck Robbins, senior VP worldwide operations, as his successor, shouldn't have come as much of a surprise. Chambers said in 2012 that he planned to retire in two to four years, and we're now smack in the middle of that range. Previously, he named three possible successors and Robbins was one of them. (See John Chambers IDs Potential Successors.)
And yet the announcement came out of the blue. Three years is a long time to be on the verge of stepping down and it was starting to look like Chambers's retirement was akin to the next book in George R.R. Martin's Song of Ice and Fire series -- always on its way but never arriving.
Also, the chosen successor was a little surprising. Lately, Rob Lloyd, Cisco Systems Inc. (Nasdaq: CSCO) VP development and sales, appeared to be the heir apparent, often appearing side-by-side with Chambers at press conferences and Q&A sessions.
One of the hallmarks of Chambers's leadership has been effective management of Wall Street expectations, and Monday's announcement was no exception: Cisco's stock barely hiccuped, closing at $29.17, up 0.14% Monday. Investors clearly approved of Chambers's announced departure plans and the choice of successor.
Last year would have been a bad time for Chambers to step down. The company laid off 6,000 people in August -- its fourth summer headcount reduction in as many years -- coupled with a 3% annual revenue decline. (See Cisco to Ax Up to 6,000 Jobs, But It's Excited About SDN.)
But 2015 is looking very different. The company reported two consecutive quarters of improved earnings, the latest in February. Cisco plans to report third-quarter results next week and expects revenue growth of 3-5%, as forecast in February. (See Cisco Sees Strong Quarter Despite Carrier Weakness.)
I suspect the timing of Chambers's announcement relative to those results is no coincidence.
I also suspect it's no coincidence that Cisco has made several announcements and public statements since December that, taken together, spell a future direction for the company.
To all outward appearances, Cisco's traditional business looks strong. And yet there are new developments in the industry that are putting that business under pressure: Networks are becoming programmable, using software APIs rather than CLIs and hardware upgrades, and hardware is becoming disaggregated from software, meaning network operators are gaining the freedom to upgrade software on existing hardware, or change hardware vendors while continuing to use the same software. This move toward disaggregation, or SDN, is still relatively a small piece of the networking industry. But it's early days yet. Cisco's traditional business model -- selling proprietary software on proprietary hardware at fat markups and being a one-stop shop for all of customers' networking needs -- is doomed in the long run. The future belongs to standardized and open source software running on white box hardware and network operators increasingly buying from multiple vendors and playing those vendors off against each other.
Chambers knows it -- he told our CEO Steve Saunders that white box networking gear is going to be Cisco's principle competition during an exclusive video interview conducted in March.
Chambers discussed how Cisco might continue to thrive in a white box world during the vendor's February earnings call. The networking hardware would be only a small part of Cisco's business. Cisco would offer a range of hardware, software and services, including networking, security and collaboration. In other words, Cisco would offer the full stack of networking software, applications and business services. Chambers sees selling individual products separately as a business dead end. (See Cisco Sees Strong Quarter Despite Carrier Weakness.)
Cisco also has its own SDN architecture, shipped last year, the Application Centric Infrastructure. (See Cisco Ships Its SDN Architecture -- Almost.)
Still, the transition to virtualization will be tough for Cisco to make and maybe the company will stumble. And yet they're off to a good start.
Next page: A sharp turn