Is Cisco Too Confident for Its Own Good?
Networking giant Cisco Systems (NAS: CSCO) took some lumps in 2011. A consumer-powered strategy fizzed and failed, rivals stole market share in the formerly unassailable data center market, and Cisco shares ended the year nearly 10% below the year-ago level.
But the restructuring and the apologies are all in the rearview mirror now. Can Cisco do better in 2012?
CEO John Chambers hopes so. Strike that -- he's sure of it.
Tell me more, John!
"In every major market transition, we have historically emerged even stronger, with more market share and intense targeted focus," Chambers said on the latest earnings call. Not only that, but: "We are well on our way to doing this once again."
In Chambers' view, network technology is becoming less of a pure bit-handling thing and more of a business technology. "The key enabler of that is intelligent networks," he told the crowd at the recent annual shareholder meeting.
And so Cisco is trying very, very hard to become another IBM (NYS: IBM) clone. In the IBM model, you have one company ready to sell everything you need in the data center, from management services and business software to server systems and network switches. That's exactly what Chambers is after: "We're moving from a technology company more toward a business partnership," he says.
After that, the strategy becomes a checklist of hot keywords. Cloud computing, digital video, social networking -- you name it, and Cisco wants to be a leader in it. Tackling all of these markets at once won't be easy, even for an industry giant with Cisco's massive resources.
Other tech titans are walking down the same path, hoping to find streets paved with gold where the trail ends. Hardware expert Hewlett-Packard (NYS: HPQ) started buying software assets in bulk before the board had enough of ex-CEO Leo Apotheker's ideas. Under Meg Whitman, HP will never have the software and services muscle it takes to run the Big Blue model.
Starting from the opposite side, Oracle (NAS: ORCL) bought Sun Microsystems to become a server and storage seller. All that's missing in this recipe is a networking component. To my eyes, this looks like the most complete not-exactly IBM effort on the market today.
Cisco's puzzle isn't quite complete, either. The company is the far-and-away networking leader, and its server line is maturing nicely. But like HP, Cisco is missing the softer side of IT. The company doesn't break out software sales in its quarterly results yet, and service revenues are shown only as a growth rate compared with earlier periods. If Chambers is serious about his strategic direction, this will change in 2012. Expect to hear a lot more about Cisco's non-hardware operations, perhaps even to the point of breaking up today's monolithic reporting structure into smaller, more digestible divisions.
The big engine that could?
If anybody can pull off this audacious transformation, it's Cisco. But I'm afraid that Chambers has bitten off more than even his mighty company can chew.
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At the time this article was published Fool contributorAnders Bylundholds no position in any of the companies mentioned. The Motley Fool owns shares of Oracle, Cisco, and IBM and has also created a bull call spread position on Cisco.Motley Fool newsletter serviceshave recommended buying shares of Cisco. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+. We have adisclosure policy.
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