Global CIO: Cisco Zapped By Destructive Power Of Innovation - InformationWeek
IoT
IoT
Cloud // Cloud Storage
Commentary
2/14/2011
07:29 PM
Bob Evans
Bob Evans
Commentary
50%
50%
RELATED EVENTS
Faster, More Effective Response With Threat Intelligence & Orchestration Playboo
Aug 31, 2017
Finding ways to increase speed, accuracy, and efficiency when responding to threats should be the ...Read More>>

Global CIO: Cisco Zapped By Destructive Power Of Innovation

While John Chambers's company has branched far beyond its networking roots, that core business has stumbled—and competitors are pouncing.

A funny thing's happened to Cisco on its way to creating the consumer-driven "human network": its core enterprise business has begun to buckle under the weight of massive costs, relentless competition from rivals large and small, and prices that have dropped faster than volume sales can rise.

Broad and sweeping ambition can be a wonderful thing in the business world but it usually leads to trouble or even disaster unless that ambition is matched with equal measures of superb market focus, operational execution, and cost management.

Over the last 12 months, Cisco hasn't scored so well in those vital areas even as it has attempted to transcend its traditional networking business and become a leading or event dominant player in everything from high-end video conferencing to consumer electronics to consumer branding to servers storage that could lead to end-to-end Cisco stacks.

Again, I find nothing wrong with that aggressive approach—but, if you're going to play that way at that scale, the margin of error is perilously slight.

Cisco's discovered that in each of its last three quarters as investors have hammered John Chambers' company for failing to match the strong double-digit revenue growth expectations he predicted and for also failing to manage costs as effectively as Cisco has traditionally done.

As the San Jose Mercury News reported last week: "But despite better than expected revenue and earnings numbers, lingering questions about the company's gross margins—and what they portend for Cisco's future profitability—helped drive the stock down nearly 9 percent in after-hours trading. . . .

Chambers in November stunned Wall Street by predicting 3 percent to 5 percent growth for the first quarter and 9 percent to 12 percent for fiscal year 2011; both were significantly less than the 13 percent analysts had expected for both periods, sparking fears the company could be losing market share to competitors.

It was his second cautionary forecast in as many quarters and sent Cisco shares plunging by 16 percent, though the stock had regained some ground in recent weeks. (End of excerpt.)

Meanwhile, networking sales among Cisco rivals such as Hewlett-Packard and Juniper Networks have been booming—so what's the core problem confronting Cisco?

Investment analyst Jon D. Markman, writing on moneymorning.com, has completed a thorough examination of the patient and says that Cisco is suffering from a very serious case of "the destructive force of innovation":

Previous
1 of 2
Next
Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
How Enterprises Are Attacking the IT Security Enterprise
How Enterprises Are Attacking the IT Security Enterprise
To learn more about what organizations are doing to tackle attacks and threats we surveyed a group of 300 IT and infosec professionals to find out what their biggest IT security challenges are and what they're doing to defend against today's threats. Download the report to see what they're saying.
Register for InformationWeek Newsletters
White Papers
Current Issue
IT Strategies to Conquer the Cloud
Chances are your organization is adopting cloud computing in one way or another -- or in multiple ways. Understanding the skills you need and how cloud affects IT operations and networking will help you adapt.
Video
Slideshows
Twitter Feed
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.
Flash Poll