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Optical/IP

Cisco's Billion Dollar Plays

SANTA CLARA, Calif. -- John Chambers, president and CEO of Cisco Systems Inc. (Nasdaq: CSCO) broke out the revenue potential and timing of six key technology markets that Cisco believes will drive future growth, during his morning keynote at the company’s worldwide analyst conference here in rainy Santa Clara.

The technology areas that Cisco expects to attain $1 billion markets, in order of current size, are:

  • Security
  • Networked homes
  • IP telephony
  • Optical networking
  • Wireless LANs
  • Storage
Chambers said Cisco’s goal in each of these new technology markets is to get to $1 billion in revenue within five to seven years from when it entered the market, and that Cisco is headed for that goal with each of these technologies.

“At the present time all of them are headed in the right direction, but if we hit half of them that’s a pretty good job."

The Cisco CEO stressed that Cisco as a company aims to practice what he preaches about IT productivity. Cisco’s internal focus was on increasing productivity in terms of both revenue per employee and customer satisfaction.

Chambers said customer satisfaction is one of Cisco’s key metrics, which it uses to rank each employee in the company. He cited a survey from Heavy Reading, Light Reading’s market research division, that indicates that Cisco ranked No. 1 among equipment vendors in the eyes of most carrier employees, emphasizing the need for Cisco to execute on service providers’ positive perception of his company (see Cisco Winning Market Perception War).

[Ed. note: The Heavy Reading 2003 Telecom Equipment Market Perception Study examines the market perceptions of over 700 service provider employees around the world.]

In a Q&A session, Chambers also addressed a print advertising campaign that Juniper Networks Inc. (Nasdaq: JNPR), Cisco’s largest competitor in the router market, is running in the Wall Street Journal. (The campaign, which uses cartoons to disparage Cisco, also may be viewed on Juniper's Website.)

“These cartoon ads have grown increasingly disparaging,” one audience member said. “This is some serious trash talking."

“In terms of how we deal with competition [Cisco] likes to play with class and… talk about what we’re doing, and about the positives within the company,” responded the CEO. “As a coach you don’t let your players make a lot of negative comments about the opposition because they get fired up enough as it is.

"[The Juniper campaign] surprised me because Juniper usually plays with a lot of class, and we are seeing some different behavior from them. Will we follow similar approaches? Absolutely not!”

In response to another question, Chambers said that Cisco’s strategy in selling IP telephony revolves around selling it as an entire network.

“I think the decision [about IP telephony] is already done. The question is whether they will do it with a single network. It has to do with where are you in making pinpoint decisions or network decisions, or network-to-network decisions."

Refining a long-running sales theme, Chambers stressed that, as always, the heart of Cisco’s message is that it can increase productivity with new network technologies.

Increased productivity has a “one-to-one correlation” with capital spending in the IT sector, he said, and continued growth in productivity will drive more capital spending, which in turn will create new jobs.

“We expect our customers to see their business improve, then they’ll spend on capex. Then they’ll watch that for a while, then we’ll see jobs.

“The reason I’m optimistic about not just the next year, but the next decade is productivity and the leverage you get from it. At 5 percent GDP growth, which I think is possible, you can double productivity every 14 years.”

— R. Scott Raynovich, US Editor, Light Reading

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ethel the frog 12/4/2012 | 11:10:34 PM
re: Cisco's Billion Dollar Plays To get $1Bn a year in optical reveune they would need to buy a large incumbent supplier - how about Lucent or Alcatel?
jim_smith 12/4/2012 | 11:10:44 PM
re: Cisco's Billion Dollar Plays Of the six plays, only IP telephony seems lucrative to me. Security is small. Incumbents in Optical and Storage will give Cisco stiff competition. Networked homes & wireless LANs have razor thin margins.

On a related topic: How long can Cisco maintain its huge profit margins on switches & routers?

Service providers are in terrible pain - their profit margins are plummetting. Sooner or later Cisco is going to feel the pain.

Having said all this, I am totally amazed how Cisco keeps pulling off the "1 cent above earnings" stunt... just amazing!
BobbyMax 12/4/2012 | 11:10:51 PM
re: Cisco's Billion Dollar Plays First of all it should be pointed out that Cisco is not very honest in describing its product. Unlike traditional companies like Lucent, Nortel and others, it does not have bative talent. Everything is acquired. It does not participate in performance evaluation of its products. More often than not, it does not have any data to backup the reliability and performance of its products. It has spent an enormous sums of money at the trade shows to have the largest display booths and entertainment. This money eventually gets charged to customers. Cisco also buys outdated products and sells it as the next generation products.

A large number of its top management people come from a very small company of 15 people which it acquired. Effectively Cisco does not have an independent Board. The SEC does not ascertain the independence of the board members.

Ciosco does not treat its competitors with respect and diginity. Unfortunately the high=tech industry does not have an equivalent of Consumer Report.

Cisco does not and did not have any expertise in the telecommunications technology, but it has declared itself as a prime telecom company. The US companies do not have smart buyers so the vendor that pesters the vendors makes the sale.

Currently HuaWei is the only viable competition Cisco faces. To eliminate competition, Cisco filed a frivolous law suite against HuaWei and effectivly stopping HuaWei from selling in North America. Since these law suites are not publicized all over the country, many fellow American citizens are not aware of the activities of Cisco.
andropat 12/4/2012 | 11:10:51 PM
re: Cisco's Billion Dollar Plays you didnt have to say procket. i could tell in your comments you were referring to procket and some of its past employees. get a life pal.
optical_man 12/4/2012 | 11:10:54 PM
re: Cisco's Billion Dollar Plays "Gotta love Cisco they get carriers hooked on their reselling juice (carriers/ISPs make a lof of $$$ of of reselling 2600s, Catalysts etc.) and then when it comes time to upgrade their Core they are stuck with the Gorilla"

yukon,
come on. Cisco in the core? What are you smoking. You aren't anywhere near the core of the RBOC's. You must be selling edge services/devices. Cisco isn't in the core.
Cisco wants to be in the core, but haven't yet figured out how. Someday they will be, just not today. The BOC's aren't stupid. Won't let 'em in until they figure out the game. (the game means many, many things, not just politics, but technology, 20 year business cases (that's one Cisco hasn't mastered yet, all their business cases are 2-3 years) etc)

On a separate, but similar note, all of the folks on LR that I see beating on the BOC's need to realize that the BOC's will come back to life, and will buy our equipment to make their networks work/customers happy.
You keep beating on the obvious survivors of the downturn, and you're gonna get bitten in the butt (some of you to the point of bankruptcy....these guys are M.S.'s, MBA, PhD.s etc. they ain't dumb)
lightreceding 12/4/2012 | 11:10:55 PM
re: Cisco's Billion Dollar Plays Chambers has to get a new sales gig and get off the tired old productivity trip. Cisco should know all about productivity, after all they have thousands of working using computers to pretty up powerpoint slides for countless internal meetings to discuss how their cross-functional teams are going to add value to the sales process. Too bad that it is really such a waste of effort, all those pretty slides but no real work.

Cisco is the technology industries greatest purveyor of FUD. That they should talk about anyone else is shameful. They used their first to market momemtum well, but their products are known to underdeliver.

Not only doesn't Cisco have much going in Optical but what about Security, the PIX is pretty old stuff and as far as I can recall they aren't doing a whole lot else, a bit with VPN, and what else?

And what does Networked homes mean? You sell a little CPE router and a broadband connection and what else? Is Cisco going to build a smart fridge?

They aren't exactly doing awhole lot in the other areas either, Andiamo trying to catch up in Storage, a wireless product that lacks features and is being attacked by commodity products. They do use their own IP phones and which are capable of dropping packets and breaking up, so I guess QoS is still an issue.

Anyway it sounds like Chambers is blowing smoke.
yukon-cornelius 12/4/2012 | 11:10:55 PM
re: Cisco's Billion Dollar Plays Gotta love Cisco they get carriers hooked on their reselling juice (carriers/ISPs make a lof of $$$ of of reselling 2600s, Catalysts etc.) and then when it comes time to upgrade their Core they are stuck with the Gorilla who's been filling their wallet with resell cash and locking them into exclusive partnership agreements...when their network would be better off with Juniper or somebody else's router or multiservice switching-routing platform.

The again it's all about the money in the end so the higher-ups at UUNET, Verizon, AT&T, Level 3 or wherever don't lose sleep at night over whether or not they purchased the best technology - only what brings them the greatest amount of cash. Good Enough + Good Revenue streams beats out Best Technology any day of the week. I hate to admit it but Cisco knows how to play that game pretty d*mn well. Lightreading should have annual "Beta-max" awards for the best technologies/products that flop and never make it.

YC
hiflier 12/4/2012 | 11:10:56 PM
re: Cisco's Billion Dollar Plays John Chambers shouldn't talk so much about the "dealing with Class" with the competition. Cisco has long made is standard sales practice to trash talk the competition when competing. Usually this trash talk is about the prospects for the competitor to survive or planting rumors that Cisco will "buy them out". And Microsoft has no monopoloy on "strongarm" tactics in negotiating with partners either as Cisco is a master of the "buy all your gear from Cisco or else" approach. What is the "Cisco Powered Network" program all about anyway. The DOJ just never got around to taking a look at the Cisco Goons like they did with Microsoft.

The one thing that Cisco almost NEVER does in a sales situation is talk about the superiority of their technology versus the competition as it usually never is.

Deal with class my ass....

But they are the most successful company in the industry so who can argue - just please don't tell me they are classy. The Juniper adds are pretty tame I thought.
mrredback 12/4/2012 | 11:10:57 PM
re: Cisco's Billion Dollar Plays fw23,

You are

1. Trying to get a rise out of people by your
CONSTANT --> BLABBERING. I don't think even
LR folks will claim their SURVEYS --> are
SCIENCE.
2. You were fired by Juniper, or lost a ton of
money on them, hey who didn't lose money on
them.
3. You are just clueless. Hey why give you the
credit for some Andy Kaufmann like stunt, when
you are probably just a moron.
4. FW23 --> BOBBYMAX

Get a life dude!
andropat 12/4/2012 | 11:10:58 PM
re: Cisco's Billion Dollar Plays fw23,

can you please keep your procket-loving, juniper hating ass off these boards. You are making it extremely hard to buy anything from Procket just based on your stupidity.

What in the hell did Juniper do to you? Did you margin a bunch of stock and when it tanked you lost your shirt? This is a technical site not a bashing site. No doubt Tony and some others at Procket will put together a viable solution but to disparage Juniper is just dumb.

Pat
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