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Optical/IP

Cisco Signals Major Restructuring

Cisco Systems Inc. (Nasdaq: CSCO) staff might be somewhat distracted during the coming weeks following an internal memo from CEO John Chambers that signaled a major upheaval designed to combat problems with the company's "operational execution."

Chambers noted that the company has "disappointed" its investors, "confused" its employees and lost some credibility, and that it's time for some "bold steps and tough decisions" to get the company back on track.

There's no doubt that Cisco, compared with previous years, has been less than formidable during the past 10 months or so. (See Cisco Offers Softer Switch, Router Sales, Is Cisco Spread Too Thinly? and Cisco Q4 Hides a Frown.)

That performance has been reflected in the company's stock. A year ago Cisco's share price stood at $26.22 but is currently $17.22, a 34.3 percent decline.

So what's Chambers planning? Well, he says he won't fix what isn't broken and that the five company priorities -- leadership in core routing, switching and services; collaboration; data center virtualization and cloud; architectures; and video -- remain unchanged.

Here are some of the key highlights from the memo:

    "We are a $40B company that for the last decade has seen a virtual explosion in market opportunity. The Internet has taken on an entirely new form– and our growth strategy has been based on capturing the incredible opportunity afforded by this massive demand for the network. Many say that in the face of this expansion, Cisco needs more discipline. I agree.

    Cisco’s value to our customers is differentiated and it is simple: we globally deliver network-centric platforms that make them more competitive. Our strategy is just as clear—we are extending the network platform to enable collaboration, data center / cloud transformation and video architectures that expand our technology and business relevance to customers and partners on a global scale.

    As I’ve said, our strategy is sound. It is aspects of our operational execution that are not. We have been slow to make decisions, we have had surprises where we should not, and we have lost the accountability that has been a hallmark of our ability to execute consistently for our customers and our shareholders. That is unacceptable. And it is exactly what we will attack.

    Today we face a simple truth: we have disappointed our investors and we have confused our employees. Bottom line, we have lost some of the credibility that is foundational to Cisco’s success – and we must earn it back. Our market is in transition, and our company is in transition. And the time is right to define this transition for ourselves and our industry. I understand this. It’s time for focus.

    We now need to prepare ourselves for what’s next, as you will see Cisco make a number of targeted moves in the coming weeks and as we move into FY12.

    We will take bold steps and we will make tough decisions. With change comes disruption, and you will see this necessary and healthy disruption as we make meaningful decisions in a timely, targeted and measureable way. We will address with surgical precision what we need to fix in our portfolio and what we need to better enable.

    We are all responsible for driving operational excellence across Cisco. As you’d expect, I’m asking each of you to play your part in this transition. The responsibility does not fall on one leader or one team. It will not be easy and I expect your participation, flexibility and feedback along the way. As I’ve said before, we will look back at this time in Cisco’s history and remember it as challenging, and important to the future of our company. Plain and simple – we need to roll up our sleeves and work it out, together. I’m ready, your leadership team is ready, and I know you are ready."


You can read the full memo here.

— Ray Le Maistre, International Managing Editor, Light Reading

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ethermac 12/5/2012 | 5:08:32 PM
re: Cisco Signals Major Restructuring

Gosh!! You really hate Cisco, don't you? Have they ever killed your cat or stolen your lunch?


That's the kind of think I'll never understand. From an objective point of view, some of the things you say can be more or less true. But some others... Cisco is more than IOS, although it's the most known thing. But there is also IOS-XR in the high-end, and this is powerful, and stands very well against JunOS, for example. And the CRS-3 for example is real, and again it's bigger and faster than the competition.


UCS is a bold bet, I agree, but again there are good technical reasons as well as economical and business, and they have made some major hits already (beating HP in some cases).  In Datacenter there is much more than the computing, and putting this together with Nexus and the unified fabrics they have a very decent product range. With all due respect, I don't see Dell competing seriously with this, they simply lack the networking part, and even HP is struggling to find network technology to keep on par. They have a problem, and it is that almost every single vendor in the networking and (now) IT space have them in their rangefinders. I would dare to say that if you're outside Cisco, you know your target very well.

netsalesman 12/5/2012 | 5:08:32 PM
re: Cisco Signals Major Restructuring

Stratboydave,


I really don't get your point. I do understand some can question cisco's product or cisco strategy but you point of view is too simplistic to be true. Either you don't have any idea of how the IT market moves or your aim is just FUDDING Cisco. 


To make an example, in my opinion Cisco has innovated a lot. Cisco simply created some markets. To name a recent one: unified fabric. Unification simply didn't exist outside some thoughts of RFC'ers before Cisco broguht the nexus to the market.


The idea of engineers that moan all day b/c they are forced to use cisco (as you say) simply belongs to the fable world of utopia, not to business where engineers are not nerd frustrated b/c they can't use what they like and what they try in their dreams, but they are rather professionals that needs to get the job done on time on budget and minimizing risks:  thinking that to a large company a small niche player with  a rocket technology can be a viable option to a well established IT firm just shows how  IT people like you are on another planet with respect to the real business world.


As it is the part of IBM, DELL etc... You would know, if you had real world experience, that  the biggest competitor in a customer is Inertia (valid for cisco too in networking) and has only partly to do with "playbooks" or tricks.


In the end, get some real IT world  experience and business dynamics understanding then I will be more than happy to hear some non trivial, facts based, opinion


 


 

stratboydave 12/5/2012 | 5:08:32 PM
re: Cisco Signals Major Restructuring

Cisco hasn't been innovative, ever, I'm sure John and all the other Cisco cult members believe they have the most wonderful techonology on the planet. They do not, and have not ever had the best technology, only the best marketing. IOS is the very definition of code bloat and has gotten even worse over the last few years. Illogical, non-intuitive, inconsistent, etc. Everything Cisco is doing today with IP has been done before, sometimes decades ago. And we already know what they're answer to almost every issue is - upgrade all of your devices and buy more stuff, getting old Cisco...


Even their strategy is a page right out of IBMs playbook, shower the client with love, affection, and support. If that doesn't work then buy the business with steep discounts to get market share and keep the shareholders happy. Seen it happen all over the place on countless occasions.


Spread too thin - let me guess the first things to go will be the FLIP, otherwise known as the worst handhelp video camera ever produced, and the Cirius tablet. You didn't know Cisco builds a tablet? Don't worry, no one else does either.


And UCS? Good luck with that. You're not competing against all the "others" that divide up the 20% of the networking market left over after you take your share, Juniper, Brocade, and ummm, I forget who the other ones are. You're competing against IT incumbents with long standing relationships, and the same if not greater marketing muscle than you. Try pulling some of your little tricks on HP, IBM, Dell, et al.


Your days of force feeding your technology to engineers that know it's inferior but have to go along with what the execs decide are over. You might want to take a real close look at how Louis Gerstner turned IBM around after they lost their "You can never get fired for buying IBM" status...MEH

stratboydave 12/5/2012 | 5:08:31 PM
re: Cisco Signals Major Restructuring

Actually don't "hate" Cisco at all, on the contrary, I've made lots of money both with them and against them. Basically I don't think it's a good idea for any company to own that much market share and if history is any example they won't for much longer, and we will all be better off. We'll have more choices, more competition, better functionality, pricing etc. The only thing I don't like about Cisco is there attitude, almost cult like, and how they've stifled competition and innovation with their heavy handed marketing and sales approach. Anyway, we'll see what happens I guess. If there's one thing I've learned in this business it's that anything can happen, and it's constantly changing. Cisco's been overly dominant for to long, time for some real competition.


We still rely on humans typing commands on a keyboard to configure these things? How about Vsphere for network gear please?

digits 12/5/2012 | 5:08:31 PM
re: Cisco Signals Major Restructuring

It seems clear that, with the number of internal memos that get instantly leaked, Chambers et al knew this would get to the outside world fast, and structured it accordingly.


I think this is more than an internal memo - I think it's a letter to shareholders and a warning shot to Cisco's rivals.


This was meant for public consumption and debate. 

stratboydave 12/5/2012 | 5:08:31 PM
re: Cisco Signals Major Restructuring

How's the kool-aid today? Grape or Cherry?...

upand2theright 12/5/2012 | 5:08:31 PM
re: Cisco Signals Major Restructuring

One of Cisco's biggest challenges is its size.  At 70,000+ people, it's time for new management.    So let's start at the top.  Chambers has had 10+ years to boost share value for investors.   That hasn't happened.   So it's time to go.  


I would also put all reorg options on the table.  Including breaking up the company. I believe  the enterprise business remains the heart and soul of the company.  The services and data center businesses represent the future.  The underperformers are the service provider businesses and the consumer businesses.  I would shed non-performing units such as Scientific Atlanta and all of consumer lines of business, with the exception of Linksys.  The smart grid stuff is interesting, particularly as an enterprise business.  Cisco needs a stronger MUCH bigger footprint in mobile infrastructure.  I would start there.


 

Rush21120 12/5/2012 | 5:08:30 PM
re: Cisco Signals Major Restructuring

Look this is just Cisco restructuring. For those who don't understand Cisco (disclaimer - I recently built products for them for 9 years)  every year they do a wash.  This allows John C the ability to restructure, remove dead weight and put a positive spin on it externally.  Whats different now is Cisco pays a dividend and is listed as one of Nasdaq 100.  John C. is market savy, he understands technology but isn't the inventator.   Cisco is still flush with cash, continues to make lots of cash and for the forseeable future will continue on that trend.  Calls for breaking up the company or that it's on hard times is unreasonable.

Pete Baldwin 12/5/2012 | 5:08:29 PM
re: Cisco Signals Major Restructuring

Actually, this reminds me of that massive rethinking Intel did around 2005 or 2006, when Paul Otellini went over every part of the business (well, maybe not microprocessors) to decide what to keep or toss -- and they tossed plenty.


I'm not sure I can see Cisco breaking up, as in, spinning off a big chunk of itself into another company -- because, what would be in that other company? Consumer doesn't seem strong enough. Video/set-tops is a maybe, but that's becoming more closely tied to the routers.


Anyway -- I typed up some guesses here: http://www.lightreading.com/blog.asp?blog_sectionid=388&doc_id=206520.  Feel free to tear 'em apart.

stratboydave 12/5/2012 | 5:08:28 PM
re: Cisco Signals Major Restructuring

Agree, hard times is relative. Hard times for Cisco would be boom times for anyone else! They do need to re-focus and re-dedicate since we are in the midst of a paradigm shift, some say it's a little back to future i.e. timesharing/the 1st gen "cloud" 30-40 years ago, except it's orders of magnitude faster, more complicated, more moving parts, types of devices, applications, high speed everywhere and so on. Critical time for Cisco since a paradigm shift is when these types of big, slow moving companies can have problems since they're not able to turn on a dime anymore like smaller companies. The last shift is what made Cisco what it is today. Is there a "next Cisco" out there somewhere? Probably.


Cisco has lots of everything, including cash, so they can buy their way into anything they want, or buy it to keep it off the market as they've done in the past. I just get a sense that they are not the "darling" of the communications world anymore, fell off the pedastal and I don't think they can ever regain the same status that they've enjoyed over the last 25 years, thank god. Hey it was a great run and I have lots of friends that made boodles of money at Cisco, some retired on it. Great ride while it lasted but there's more moving parts now, Cisco can't supply all of them and it needs to realize this and "stick to it's knitting" as they say. Lately they've been pretty reactive in all of the "New Data Center" technologies, fabrics etc. vs. proactive. Playing catchup, something Cisco is not used to.


Usually what happens is companies start with a core set of capabilities that they are really good at, then they turn around and add a bunch of other stuff or products that may be related but not really their core competency. In the end you end up with a compromise product(s) that does one thing really well but the other stuff is so-so. Happens all the time in all industries. Just look at Google, the darling of the internet - searching is still their core competency, pretty much all of the other stuff they try, Buzz, Google Apps and so on are sub par compared to the competition to say the least.


No one's saying Google will fail either but they have had some prety collosal failures lately trying to go outside their core competency.

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