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Robotics Developer
I would imagine that Cisco thought they could expand into the consumer market ...
rick.merritt
BTW, I think Huawei is really eating Cisco's lunch in its core business.
Cisco sings the consumer blues
Rick Merritt
7/18/2011 8:39 PM EDT
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.
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selinz
7/18/2011 9:53 PM EDT
Yikes. My neighbor told me that Applied is going back to work furloughs. Are the heading downward again?
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batavier
7/19/2011 6:00 PM EDT
Bad decisions made by the management of certain companies are dragging everybody down. And of course the ones at the bottom suffer the most while the top brass always have their golden parachute.
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hm
7/19/2011 1:40 AM EDT
What will happen to Cisco's cloud service? Is this also part of consumer product?
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goafrit
7/19/2011 3:29 AM EDT
The problem with Cisco is John Chambers. Let him retire
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kinnar
7/19/2011 9:46 AM EDT
It is quite right that cisco should look into its core business, simultaneously it should also look toward the affordability of the products for the complete stack.
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Tunrayo
7/19/2011 10:17 AM EDT
I believe Cisco should still continue to expand its business and acquire strategic units. By identifying unique industries with huge growth potential, Cisco can expand its dominance across markets.
An example is its expansion into the smart grid business. Having complete product suites of sensors, routers and switches could unlock great revenue potentials.
The difficult part is identifying or creating such opportunities in the market.
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LarryM99
7/19/2011 1:17 PM EDT
Cisco jumped into the consumer space because its core infrastructure business was slowing down due to the excess of dark fiber left over from the late '90s buildout binge. It seems like the best path forward is to refocus on that core business, since video streaming is eating up that excess very quickly. Sooner or later someone is going to bite the bullet and seriously roll out fiber to the home in the US, and that is going to be very lucrative for someone who has the right product at the right price.
Larry M.
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pixies
7/19/2011 2:54 PM EDT
CISCO has been a growth company. But now it is sitting on a huge pile of cash, which makes it look more like a value company. To truly become a value company, it has to dish out dividends instead of using the cash for M&A, and that will turn it into a sitting duck for its competitors to catch up. Its "core business" is not growing very much so turning into consumer electronics is not a very bad idea on paper, especially in light of the explosive growth of smartphones and Skype. The problem is that it is too early for the market and CISCO is not experienced in the consumer market. But better early than late, the company has the cash to experiment and hope it will learn from the recent stumbles. As Larry pointed out, when the time comes, the company with the right product at the right time will win. BTW, I have a CISCO E3000 and I really loves, it is too early to write off the Linksys purchase.
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Frank Eory
7/19/2011 4:41 PM EDT
"The networking giant looked like an out of place midget at the CES carnival." Great comment Rick, and so true. Consumer electronics is a very different animal than infrastructure business, and Cisco isn't the first company to learn that the hard way.
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rick.merritt
7/19/2011 7:37 PM EDT
BTW, I think Huawei is really eating Cisco's lunch in its core business.
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Robotics Developer
7/21/2011 11:10 PM EDT
I would imagine that Cisco thought they could expand into the consumer market and make good money. I am not sure why that did not happen but if it caused them to lose focus from their core business than that can be a dangerous thing in the global marketplace. I have used Cisco products and always been happy with them. This looks like a serious mid-course correction and a painful one at that.
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