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Optical/IP

Cisco's Volpi: Back to Basics

BOSTON -- One day after Cisco Systems Inc. (Nasdaq: CSCO) reported positive earnings news, boosting the networking sector, Mike Volpi, senior vice president of Internet switching and services for Cisco, addressed a full house during a keynote speech at the Next Generation Networks (NGN) conference in Boston (see Cisco Beats Estimates). Volpi’s main message to his audience was simple: The world has changed over the past year, and in order to survive companies have to change, too.

Volpi’s words of wisdom come at a time when Cisco wowed Wall Street with earnings that were actually down 78 percent from a year ago. But when compared to the previous quarter, the company grew sales 3 percent and beat earnings consensus by 2 cents -- a modest change by 2000 standards, but a good showing for 2001.

In his speech Volpi emphasized changes in the way companies develop their businesses and products. No longer can companies bet on every buzz-word technology that comes along, and no longer can they afford to ignore profitability in the name of investing in innovation. Companies must return to basics, he admonished.

“Focus is key to our industry now,” he said. “Companies can’t bet on everything like VCs hoping that some of their picks will generate enough revenue to sustain them. They don’t have the resources for that anymore. It’s time to separate the technology winners from the losers.”

This means that companies will have to sacrifice development of some technology groups in favor of deepening spending in areas that have more potential to generate value for shareholders, he said. For Cisco, this means focusing on three technologies: Ethernet/Sonet convergence, metro optical, and wireless Internet technology. Volpi emphasized that Cisco would continue to exercise restraint and thorough due diligence in selecting technologies for investment.

While he did not mention competitors by name, it was hard not to think of two of Cisco’s largest, which have fallen victim to haphazard investment strategies: Lucent Technologies Inc. (NYSE: LU) and Nortel Networks Corp. (NYSE/Toronto: NT).

Volpi's remarks struck a chord with Ron Sege, CEO of Ellacoya Networks Inc., an IP services startup. “A lot of companies took the approach of throwing a bunch of technologies at the wall and seeing what sticks,” he said. “In good times that works, but in bad times it exposes you to risks. That’s what brought down Lucent.” Cisco was a little smarter, he added, showed a bit more restraint, and seems to have come out better than some of its bigger rivals.

Volpi emphasized the importance of profitability. Gone are the days when venture capitalists and other investors punished companies for making a profit. The thought back in the late 1990s and into 2000 was that profits should be kept to a minimum so that money could be reinvested in future development. Not a bad idea when the market bubble was at its fullest, but Volpi says it's now time to concentrate on making money.

“Profitability is key,” he said. “It needs to be baked into every business plan from the beginning, because it isn’t easy to get there later on. That requires placing bets early on the right markets and right opportunities.”

He was also sure to point out that not everyone will emerge winners in this new world we live in. To the contrary, he warned that the industry still has to weed out some weaker players before it can grow strong again.

“We need to realize that it is a different reality out there today,” he said. “Assumptions about available capital and the number of players that a given market can support have changed.”

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com
green 12/4/2012 | 7:37:25 PM
re: Cisco's Volpi: Back to Basics heard cisco's earning were buffeted by either
interest income and/or investment income. if one subtracted those, the earnings are not as great. by it is clear that cisco is becoming the IBM of networking. stable but not a exiting place to work for. win contracts based on longevity rather on product merits... any ideas??
toll booth willy 12/4/2012 | 7:37:02 PM
re: Cisco's Volpi: Back to Basics Son, we live in a world that has walls and those walls need to be guarded by men with optics. Who's gonna do it? You? I have a greater responsibility than you can possibly fathom. You weep for the industry and curse the markets; you have that luxury. You have the luxury of not knowing what I know: that this economic downturn, while tragic, probably saved lives and that my existence, while grotesque and incomprehensible to you, saves jobs.
You don't want the truth because deep down in places you don't talk about at parties you want me in the industry, you need me in the industry. We use words like revenue, profitability, visibility. We use then as the backbone of a life trying to defend something. You use them as a punchline. I have neither the time nor the inclination to explain myself to people who use the very bandwidth I provide and then questions the manner in which I provide it. I would rather you just said "thank you," and went on your way. Otherwise, I suggest that you pick up a start up and sell more optics. Either way, I don't give a damn what you think you are entitled to.
toll booth willy 12/4/2012 | 7:37:01 PM
re: Cisco's Volpi: Back to Basics Son, we live in a world that has walls and those walls need to be guarded by men with optics. Who's gonna do it? You? I have a greater responsibility than you can possibly fathom. You weep for the industry and curse the markets; you have that luxury. You have the luxury of not knowing what I know: that this economic downturn, while tragic, probably saved lives and that my existence, while grotesque and incomprehensible to you, saves jobs.
You don't want the truth because deep down in places you don't talk about at parties you want me in the industry, you need me in the industry. We use words like revenue, profitability, visibility. We use then as the backbone of a life trying to defend something. You use them as a punchline. I have neither the time nor the inclination to explain myself to people who use the very bandwidth I provide and then questions the manner in which I provide it. I would rather you just said "thank you," and went on your way. Otherwise, I suggest that you pick up a start up and sell more optics. Either way, I don't give a damn what you think you are entitled to.
russ4br 12/4/2012 | 7:36:59 PM
re: Cisco's Volpi: Back to Basics boy - what have you been smoking ?!!
cfaller 12/4/2012 | 7:36:59 PM
re: Cisco's Volpi: Back to Basics I disagree with russ4br, I liked toll booth willy's post. Moving right along...

Yet another NSS (No S--t Sherlock) speech given by one of the industry leaders. I have one question that maybe someone can answer: if Cisco is going to concentrate on ethernet/SONET convergence, metro optical, and wireless internet, how does that affect their core competency- routers?
sock 12/4/2012 | 7:36:57 PM
re: Cisco's Volpi: Back to Basics This speech basically sounds like Marketing 101. How you got a "this is news" story out of it is beyond me!

rjmcmahon 12/4/2012 | 7:36:56 PM
re: Cisco's Volpi: Back to Basics if Cisco is going to concentrate on ethernet/SONET convergence, metro optical, and wireless internet, how does that affect their core competency- routers?
_____________________________

Volpi may have been speaking about where R&D monies are being spent. It's also hard to tell if he is speaking for the entire company or his division.

In general, what seems to be happening across the industry is that yesterday's computer architecture of cpu, storage and io is being decomposed and distributed. Cisco seems to have moved beyond its routing competency to become more of an intelligent io company, where its core competencies of yesterday seem much less significant in this new role.

-Bob
optical 12/4/2012 | 7:36:54 PM
re: Cisco's Volpi: Back to Basics Good "back to the basics" message from Cisco, but are they really willing to slug it out in the metro optical space which does not represent Cisco's normal profit margins expectations?? I'd love to hear the internal discussion that goes on at Cisco over this issue.
rjmcmahon 12/4/2012 | 7:36:52 PM
re: Cisco's Volpi: Back to Basics Are they really willing to slug it out in the metro optical space which does not represent Cisco's normal profit margins expectations?
__________________________________

They seemed to have slugged it out in the edge eswitch market where generating high gross margins is also a challenge. Slugging it out in MAN seems required.

Also, for the MAN owner it is the opex and not the capex which contributes the most to the expenses. Products which generate recurring revenue, vs incremental cost reductions, seem preferred here.

-Bob
gladysnight 12/4/2012 | 7:36:52 PM
re: Cisco's Volpi: Back to Basics russ4br wrote:

boy - what have you been smoking ?!!
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and where can I get some??
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