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Cisco CEO: 'We have disappointed our investors'

John Chambers outlines turnaround strategy in lengthy memo

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Strategy questions

What does El Reg think about this? We note that Cisco is facing competition from HP ProCurve, which is getting stronger all the time. Brocade is still there in storage networking and making a go of Ethernet switching. Juniper is delivering on Project Stratus. Huawei has switching products as does Hitachi and they have pricing flexibility under Cisco's fat margins.

We note too that Cisco's UCS servers are not a game-changing, knock-out success, not compared to server sales from Dell, HP, IBM and Oracle. These companies know that servers are not sold alone and that converged IT stacks mean the traditional four-way split between servers, networking, storage and system software is eroding. The trend, it appears, is towards integrated and converged IT stacks from one vendor... "from one vendor," not from a coalition such as the Cisco-VMware-EMC coalition. This, El Reg thinks, is a fundamental weakness of Cisco's server strategy. The servers are not integrated enough with networking, storage and system software products.

This issue is not addressed by Chambers' memo and it is not an operational issue. The logic of converged IT stacks is that Dell, HP, IBM and Oracle will all pursue the acquisition of integrated IT product stacks in-house, leaving little market space for vBlocks, the VCE coalition's bundle of EMC storage, VMware virtualisation software, and Cisco UCS servers and networking. We're not saying there isn't market demand for vBlocks – there obviously is – but it isn't growing fast enough to get Cisco out of its problems, self-evidently so, otherwise Chambers would not have needed to write his memo.

We're not saying Chambers is wrong about the other issues identified in his memo, far from it, but we do think there are questions to be asked about Cisco's server strategy, and these are not being asked.

Internal Cisco changes

Cisco is going to have to change internally and Chambers will drive and back Moore to ensure these changes happen: "We will simplify the way we work and how we focus our attention and resources. We will significantly rework our systems, tools and funding models to do this. We will reshape the operational foundation in order to empower our teams, integrate our major functions, and allow our people to focus on inspiring and important work. We created the role of COO to expedite this effort and Gary Moore and I will drive these changes with the leadership team."

It's an impressive memo. Chambers demonstrates a terrific ability to express ideas simply and clearly and encourage everyone involved to feel engaged in, and committed to, fixing the problems. Let's see what emerges over the next three months and see if Cisco gets back on its revenue and earnings track. If it does then Cisco's CEO succession might rear its head, with Gary Moore looking well-placed to be a candidate. ®

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