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Cisco's Kennedy Ready to Leave?

Light Reading
News Analysis
Light Reading
7/26/2001

A rift between Kevin J. Kennedy, senior vice president of Cisco Systems Inc.'s service provider line of business, and John Chambers, Cisco's CEO and president, has resulted in Kennedy considering other positions, sources say.

As reported by Light Reading yesterday, Wall Street is abuzz with rumors that Kennedy is being considered for CEO posts at either Redback Networks Inc. (Nasdaq: RBAK) or Nortel Networks Corp. (NYSE/Toronto: NT) (see Cisco's Kennedy: Recruiter's Dream?).

Today's dose of scuttlebutt has it that Kennedy is seriously considering the Redback deal, not the Nortel move. Observers cite two reasons Kennedy may want to leave Cisco Systems Inc. (Nasdaq: CSCO). First, he wants the opportunity to lead a company. Second: "It's widely known that the chemistry between Kennedy and Chambers has been atrocious for the last three months," says a source at Cisco, who requested anonymity.

Filings with the SEC indicate that Kennedy has recently been heavily selling his Cisco position. In May, Kennedy filed to sell 627,000 shares of Cisco at about $19 apiece, yielding gross proceeds of $11.9 million dollars. In the same month he exercised 300,000 shares at strike prices of $5.81 and $4.33, leaving him with a tidy profit on those options.

Executives looking to switch companies have three choices: a startup, an established player, or a public turnaround candidate. Of the three, a turnaround company is the hardest gig. And Redback clearly falls into that category. Redback's stock price has fallen faster and farther than that of its competitors -- losing more than 95 percent of its value in the last 12 months (see Redback: How Low Can It Go?). In the past two quarters, Redback has reported brutal losses.

How would such a transition affect to business and/or the stock of either Cisco or Redback? Many investors were skeptical that Wall Street would have a big reaction in either direction.

"It's a non-event," said the fund manager, asking to remain unnamed. "It's [Cisco] a big company. Nobody is indispensable."

Redback's heavy losses would require a formidable effort to turn around. Observers note that Redback is riven with internal political battles between the original Redback crew, those that came on board as a result of the company's acquisition of Siara Networks, and employees imported from Cisco. Redback's executive team includes two former Cisco executives and a former Siara executive. Its board includes two early Siara investors.

Of course, these are high times for seasoned telecom executives because there's an abundance of startups out there in need of experienced leadership. "Other than Dick Cheney, I can't think of anyone who'd be permanently content with the title of vice president," says Stephen Kamman, an analyst at CIBC World Markets, who declined to comment directly on the Kennedy-Redback situation.

"Redback has some strong backing from Sequoia Capital and some latent potential in its technology," says Kamman. "It could be an interesting challenge or opportunity for the right person."

"Redback does not like to comment on rumors or speculation about Kevin Kennedy or anyone else," says a Redback spokesperson.

Cisco was equally eager to chat: "We don't comment on rumor or speculation." So we've heard!

— Stephen Saunders, Founding Editor, and Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com

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butYouYes
butYouYes
12/4/2012 | 8:02:02 PM
re: Cisco's Kennedy Ready to Leave?
ceich - are you perhaps KJK?

byy
ceich
ceich
12/4/2012 | 8:02:02 PM
re: Cisco's Kennedy Ready to Leave?
".... Nobody is indespensible."

Not even copy editors....
Larry, Monkey
Larry, Monkey
12/4/2012 | 8:02:01 PM
re: Cisco's Kennedy Ready to Leave?
ouch!
thanks, ceich.

LR copy editor
johnjohn
johnjohn
12/4/2012 | 8:01:53 PM
re: Cisco's Kennedy Ready to Leave?
i heard on cnbc that reback has 8 quarters of csh left...doubt if anyone would want that ceo job
lighthearted
lighthearted
12/4/2012 | 8:01:50 PM
re: Cisco's Kennedy Ready to Leave?
8 qrts is two years, and you assume that they do not hit cash flow positive in the mean time. if an executive is looking to negotiate from strength, be in position to leverage his/her core strengths (service provider relationship / knowledge, and potentially realize a huge personal return, why not RBAK for Kennedy?
HarveyMudd
HarveyMudd
12/4/2012 | 8:01:44 PM
re: Cisco's Kennedy Ready to Leave?

It would be very difficult for Redback to recover. It has mee-too-products and technologies and it can not be rescued from its current situation.
bluemtn
bluemtn
12/4/2012 | 8:01:40 PM
re: Cisco's Kennedy Ready to Leave?
"me too products" give an example. They claim to have the leading market share with service management. overall they are a strong player at the metro level which they target.

They only need about 85 to 90 million a quarter to break even. Q3 was $80e6, Q4 was $114e6, Q1, was $57e6GǪ(which was 20-30% ttm growth). RBAK could be profitable sooner than people think. New contracts in Asia, and the Qwest / AOL agreement yesterday should increase SMS shipments to Qwest.

Your writing RBAK off too easy.
KPSmells
KPSmells
12/4/2012 | 8:01:35 PM
re: Cisco's Kennedy Ready to Leave?
Everyone was a hero during the artifical boom and hype market. Now is the time to show real merit and guts. I guess kevin was the product of artificial boom and couldnt produce results during the real economic cycle. So out he goes....
HarveyMudd
HarveyMudd
12/4/2012 | 8:01:25 PM
re: Cisco's Kennedy Ready to Leave?
What you are saying is absolutely true. There are a lot of Cisco people who gre wings during the period of boom but could not deliver or think during the difficult times faced by Cisco. Some of the Cisco management people got 7-8 promotions in two years without acquiring maturity at any level of their respective job assignments.
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