SAN JOSE, Calif. – I blame Wall Street and overly ambitious management as the twin bad guys behind Cisco Systems' woes. The duo conspired to create a monster that never should have stumbled into the consumer electronics marketplace.
The networking giant said today it is eliminating 6,500 people, about nine percent of its workforce. That sent shock waves rippling out from its sprawling Silicon Valley headquarters where the company was seen as a tech industry darling just a few years ago.
The news is just the latest chorus in an old familiar accordion song of binge and purge. Wall Street loves growth and rewards management for delivering it, setting up an often unsustainable series of acquisitions.
Cisco played the M&A tune admirably in its core networking market. The company was essentially assembled from the merger of successful router and switch startups that created an Ethernet giant.
Over the last decade, Cisco made a series of moves expanding beyond Ethernet. It used novel spin-ins like Andiamo to enter Fibre Channel storage nets and Nexus to pioneer Fibre Channel over Ethernet. Both were well executed plays, natural follow-ons to its core business.
Even its bold move into commodity x86 servers in 2009 was well executed. It created the kind of one-stop, data-center shop competitors such as Hewlett-Packard also have been assembling. Even its steps into smart grid businesses like sensor networks seemed timely and judicious.
But Cisco's move into consumer electronics was more of a zigzag stumble then a set of strategic steps.
The company's 2003 acquisition of Linksys already seemed like a bridge too far into unrelated home products and retail channels. The follow up 2005 acquisition of set-top box maker Scientific Atlanta was arguably a more reasonable attempt to be a full service supplier to telcos building out their networks.
But four years later when Cisco tried to make its first big splash at the Consumer Electronics Show, its products were not compelling. The networking giant looked like an out of place midget at the CES carnival.
The concept of acquiring Pure Digital to help drive consumer video to the Web set Cisco up for a big fall when it dumped the company for a big loss after a two year ride. Its efforts to distinguish itself in tablets look equally ineffective.
Meanwhile, Cisco has been falling behind in its core markets. It commanded 42 percent of the $5.9 billion edge router market last year, down from 57 percent in 2006, according to market watchers at Dell'Oro Group.
The job cuts suggest the company has been putting on middle-management fat in the last decade of M&A. Fifteen percent of its VP and higher execs are getting the axe with the latest reductions.
In the end, my instant analysis says Cisco needs to stick closer to its core networking business and manage more for sustainability than growth. But I aim to dig deeper into what lessons can be learned from Cisco's woes.
To that end, I'd love to hear some stories from the field as a prelude to a deeper exploration of the lessons to be learned here. Please chime in to share your thoughts about where Cisco went wrong and what will set it back on the right path.