John Chambers told me he had a message for InformationWeek's readers: Don't underestimate Cisco.
Almost two months after announcing plans to cut 5% of its workforce as it "realigns resources" to focus on fast-growing businesses such as cloud, mobile and data center, the Cisco CEO sat down with me on Oct. 2 for a 30-minute interview before his keynote address at Interop New York.
Chambers wanted to remind people that the world's biggest networking company has encountered such "bumps in the road" many times before, only to "come out of each of those bumps stronger than we've gone into them." In a sign of just how high Cisco's growth ambition is, the company's layoff disclosure in August came as it was reporting fourth-quarter net income of $2.3 billion, 18% higher than in the year-earlier quarter, on 6.2% higher revenue of $12.4 billion. Call it a speed bump.
"We've hit such bumps five, six times. Each time it's occurred people get all worried," said the 64-year-old Chambers, who exudes energy even after 18 years leading the same company (he said he still lifts weights and runs four to six miles three times a week). "I don't worry about the bumps in the road, whether they're economic or small technical challenges or key endpoint competitors for a period of time. If we get the big picture right, we execute very well architecturally, we will become the No. 1 IT player. I believe that IT and communications will completely come together."
Chambers went on to talk about Cisco's major IT industry competitors (not just in networking) and the accelerating pace of change that will overwhelm some of them. "In terms of IT companies, out of the top six -- and you can argue who the top six are … an HP, an IBM, a Microsoft, an Oracle, an SAP, a Dell type of player -- in my view only three of them will exist in a meaningful way three to five years from now," he said.
In that context, I asked Chambers about the single biggest challenge keeping him and his senior management team up at night, a question I had asked him in an interview at Interop five or six years earlier. Chambers used the opportunity to recount Cisco's vision at the time about the future of network computing: the convergence of data, voice and video over a single IP infrastructure; network and service virtualization; application-aware networking.
"If you take application-aware networking to its natural extension, it says we were going to move into the data center [something Cisco did in 2009 with its Unified Computing System, an x86 server platform comprising computer hardware, switching fabric, virtualization support and management software]. You play this out architecturally over a period of time in pieces that come together, and this is what we've done that no one else has done."
Every major IT vendor is grappling with aging product lines, slower growth and narrowing profit margins. Microsoft is trying to position itself for a world where its cash cow Windows and Office platforms no longer are the center of personal and office computing. Hewlett-Packard is struggling to move well beyond printers, PCs and servers that are becoming commoditized. IBM's still piecing together its disjointed software lines and high-priced services into a cohesive Smarter Planet strategy. Oracle and SAP are trying to move beyond on-premises enterprise applications and relational databases. All of those companies, with the exception of Oracle and its septuagenarian leader, Larry Ellison, have or will soon have new leadership.
Chambers faces the same kinds of challenges. Cisco is still very much dependent on switch and router sales and profits, but products from the likes of Arista, Huawei and HP are putting pressure on its pricing and profit margins. In an InformationWeek survey last year, we asked IT pros which of 12 networking vendors they like besides Cisco. The top five included HP (chosen by 41%), Juniper (40%), Dell (24%) and Brocade (17%). But a big surprise was that 38% of survey respondents chose VMware, an emerging competitor in the software-defined data center sector.
Chambers doesn't seem as worried as, say, Microsoft or HP about becoming marginalized by lower-cost or more-innovative competitors. He's heard it all before. At one time or another during his 18-year Cisco career, Lucent, Alcatel, Nortel, Extreme Networks, Foundry, Juniper, Wellfleet, Cabletron, Synoptics, etc. were all going to eat Cisco's lunch. Only two or three of those companies still exist as standalone entities amid networking industry consolidation and upheaval.
When I asked Chambers in an interview way back in 2005 about who Cisco's major competitors would be moving forward, he dismissed the likes of Juniper, Lucent and Foundry, instead focusing on some still-to-emerge competitor out of Asia. "That's where the No. 2 or the No. 1 player will be, and we'll do everything possible to make sure it's the No. 2," Chambers said at the time.
When I reminded him last week about that prediction, he shifted the conversation a bit, perhaps not wanting to give too much market cred to China's Huawei, which in short time has become the world's biggest supplier of carrier-class telecom equipment (mostly in developing countries) and has designs on the U.S. enterprise networking market (where it's still a long shot given U.S. security concerns about dealing with a supplier whose founder is a former Chinese military official).
"I'd word it a little bit differently," Chambers said when I brought up his Asian competitor reference. "Probably what I would have referred to is that our competition is about getting market transitions right. [That was not Cisco's messaging in 2005, but it pervades Chambers' speeches today.] And it's very likely one of our challengers would be out of Asia, where I saw even 25 years ago in places like China an emerging group of great engineers, high technical skills, etc. -- both partners and challengers. If I do my job right, it's about getting market transitions right. And we've shown an ability to execute again and again.
"We're currently No. 1 in 13 of our 19 major product families and focus areas, No. 2 in five and No. 3 in only one. And we bring them together through architectures that no one else is really able to do. This next calendar year will be the year where architectures really come together. When we were talking about end-to-end architectures in 2005, 2007, people were saying: 'end-to-end architecture?' And now everyone understands how this plays together. And we're uniquely positioned to take advantage of it."
Chambers continued: "So in terms of our competitors, if you believe that this is the way the world is going to come together, our competitors are still selling boxes. Our competitors are still only in service provider or enterprise or public sector. [Chambers used to talk about the need to be a player in home networking as well, but Cisco has since pulled out of that market.] Our competitors are a wireless company or a data center company with commoditized servers. They are players that are in collaboration. We pull it all together. No company in high tech has ever done this successfully at the speed that we are. And we do it with this model: internal, including internal startups; acquisitions, including spin-ins, and our spin-ins have all been billion-dollar market creations for us; and the ability to uniquely partner [in storage, for example].
"There will always be a new set of competitors that are going to quote 'eat our lunch,' and there probably have been 100 over the almost 20 years that I've run Cisco. But none of them has had the staying power in more than one product area or two, much less across 20 product families."
Meantime, Chambers looks at the world economy and sees a $14.4 trillion market opportunity he calls the Internet of Everything: referring to the explosion of sensor-equipped devices, appliances and equipment, from which data gets sent over wired and wireless networks to be analyzed and acted upon in near real time. No, Cisco won't make those sensors and smart machines and analytics software, but its networking systems will sit at the core of this industrial movement. The more "data in motion" generated by the Internet of Everything, the more bandwidth and intelligent network systems service providers and enterprises will need to buy to carry that data.
I asked Chambers whether most of Cisco's customers have even begun thinking about the Internet of Everything, otherwise known as the Internet of Things or the Industrial Internet. Perhaps not in those terms, but the primary challenge for CIOs, he noted, "is how to implement their CEO's or their government leader's goals. What business leaders are focused on first is growth, innovation and what new business models are going to do for them or to them, the Amazon-vs.-Wal-Mart type of discussion." That is, the Internet of Everything discussion.
"They're focused on changing the experience, the way they interface with their customers and their employees," Chambers said. "And they're thinking about how to do it on a global basis regardless of the size of their companies, and how to do it in a secure, trustworthy, privacy way. So what the CIO is thinking about lines up very similarly. It's about how do you accomplish the business goals of innovation in an environment that's moving from client-server to mobile-cloud, that's moving to a new generation of apps that are more consumer-like, with every application occurring wherever you want it to be in the network, especially at the edge. For certain applications, that's a must. A manufacturing floor application. An application that occurs in the car as you're driving. A healthcare application. And they're thinking about how to use big data, which everyone's getting excited about.
"But when people think about big data, they think of it as static, non-moving. Big data is about data in motion. A majority of its benefit will be in making decisions in real time. And there will be as much unstructured data as structured, including social data, Facebook and Google, and video, watching what customers do in a store and being there to help them at their option, with proper respect for privacy. The ability to move electricity around a network that will literally be more Internet-like, where most of the decisions will be made at the edge of the network. And then how do you make this secure, because the whole world is going to be IP."
Watch more of what Chambers had to say about Internet of Everything and IT's future in this video from our conversation: