Cisco's Old Math
That doesn't mean I think he's been perfect. In fact, there's one major mistake I think he made repeatedly in recent years, and it might have helped turn shareholders against the company.
It's the "12-to-17 percent" growth forecast. This occurred to me recently, during Cisco's fourth-quarter earnings call, the one where all the bravado came back. (See Cisco Says It's Ready to Fight.)
Analysts always seemed skeptical about that forecast. Every now and again, someone would do the math and ask, "If you're sticking to 12-to-17-percent, doesn't that imply you have to make $[Unlikely Number] next quarter?" I seem to remember Simon Leopold at Morgan Keegan & Company Inc. doing this more than once.
Chambers's answer was always that "12-to-17 percent" was the long-term trend and that Cisco might cruise above or below it in any given set of four quarters.
The October 2008 crash messed up the math; Cisco's revenues went downward, then climbed madly, percentage-wise, as business reverted to normal. It was hard to glean a long-term trend. The more pressing concern was that Cisco's size made "12-to-17 percent" seem overly ambitious.
Analyst Brian Marshall of Gleacher & Company Inc. writes that Cisco has grown 11 percent per year, on average, during the past five calendar years, which falls short of the goal by $400 million or so per year. It takes a lot of Flip cameras to make that up.
It was a mistake for Chambers to stick to the image of Cisco as a growth company. Cisco lost its startup status a long time ago, and it never seemed likely that the company could find some new purchase or adjacency, every year, to reach the 12 percent line.
Now that Cisco has apparently abandoned the 12-to-17 target, Marshall thinks it should declare a new target of 10 percent. That seems reasonable, and in fact, it's the range of natural growth -- not counting acquisitions or adjacencies -- that Cisco was projecting for itself in 2009.
Like any smart company, Cisco wants to stay "innovative" and "nimble" and all those other Silicon Valley words that everybody likes. But it has to grapple with its status as a big incumbent vendor. Keeping the innovative spirit is going to require some shocks to the system.
This time around, the shock came from the outside. Chambers told us in July that he's set a self-administered wake-up call four years from now, when he expects Cisco to require its next major changes. He seems to have learned from this latest cycle -- but we'll find out in four years, or maybe sooner.
— Craig Matsumoto, West Coast Editor, Light Reading