After 20 years as commander-in-chief, John Chambers is moving from CEO to executive chairman. His replacement will be Charles Robbins, who joined the company back in 1997 and is currently head of worldwide sales. Will this end well or will the company continue to tread water?
Initial signs indicate this won't be a shake-up-the-company move, like the leadership change at Microsoft (News - Alert), but more of a gradual change, with Chambers still planning to engage with customers and governments. And that's unfortunate, because while Cisco (News - Alert) continues to hold market share, it's not really breaking ground on new ideas and products.
Cisco has said all the right things to a casual listener. It's going to continue to emphasize its Internet-of-Things things and invest in cloud services. But the company isn't increasing sales much, averaging only 0.7 percent per share over the past five years, according to one Wall Street metric. It's also sitting on a pile of cash that it's dribbling back in the form of 21 cents a share as a dividend, and conducting a stock buyback plan to boost the stock price.
Finding a replacement for Chambers started back in January 2014, but the company has been searching for a more solid identity since the 2000 dot.com stock market crash. Just before the fall, the company was worth $500 billion and the most valuable company on Wall Street. Today, it is valued at around $150 billion—respectable, but not the dominant force it was more than 15 years ago.
The biggest threat to Cisco's core business is the move to open software loaded onto commercial off-the-shelf hardware, lowering price and typically improving both performance and flexibility. ADTRAN, GENBAND (News - Alert), Metaswitch, and others have all moved away from a hardware-centric approach, instead enabling many functions to operate in a SDN/NFV environment on either generic hardware or virtually in a cloud.
Roughly two years ago, Microsoft CEO Steve Ballmer announced he would step down and be replaced by Satya Nadella (News - Alert). Ballmer cut his ties to Microsoft and stepped out of the picture, leaving Nadella free to make a radical shift to a mobile first/cloud first strategy. While it is early, Nadella seems to be shifting Microsoft's core mindset away from a software-focused company to a services-based one.
Robbins doesn't sound like he's going to move away from Cisco's cash cow business of hardware, especially with Chambers still lurking around the executive office suite. Fortunately, the company has enough cash and stock to acquire smaller companies to beef up its portfolio of offerings in the SDN, NSV and COTS hardware offerings. However, those future products are going to ship at a discount relative to dedicated hardware boxes, leading to further declines in revenues.
Cisco also can't be too happy with the "roll your own" hardware trend among large data center operators. Amazon, Google, and others are going to OEMs directly to build their own data center hardware, optimizing switches and servers for performance and cost. Facebook (News - Alert)'s Open Compute initiative is working on high-performance switches for the data center that anyone can build. Routers—Cisco's bread and butter—have to be on someone's roadmap to be open sourced and COTS-ized. Something has to give at some point and Cisco's traditional high-end pricing is likely to be the first thing to take a hit.