20 Slippery Questions With Cisco CEO John Chambers12:00 PM EST Tue. Oct. 23, 2012
Partners bet on Cisco, says CEO John Chambers, because Cisco doesn't lose.
In a wide-ranging interview with CRN at Cisco's San Jose, Calif., headquarters this month, Chambers took about 45 minutes of questions. Here are some key topics that emerged.
We've had regular succession planning for two decades, a first wave and a second wave, but that was more "hit-by-the-bus" or I mess up. Now, we're looking at a logical transition occurring, and last year we said three to five years, so guess what, now we're saying two to four. No major surprises there. What's exciting about it is that we have two waves on which we meet with the board on leaders. The first is three or four people, the second is five or six, and that seems like a lot, but really, it's what you need in the pipeline. It isn't just about who's going to be CEO, but who are the three to five people who are really going to run the company. And by the way, no one will be CEO here who would not stay if they weren't one of the three to five running the company.
I'm not going to go down that path. But if I were to answer it very directly, it's more when things are ready. It's more when the opportunity is there.
You need to understand that this is a board decision on which I have an influence. I think all of us recognize there are huge advantages coming from internal.
Succession planning should be a non-event. It should just naturally occur, and we know in our industry there are very few of those that have gone well. Whether it's right or wrong -- and I do believe it's right -- we're going to be transparent. You'll see us move around our players, out of silos -- which used to be the way you developed people -- and take a services person and move him into engineering, or put an engineering person into operations. You'll see us move around our team with regular frequency with the job being to not just see who's been in silos, but who does well and who will struggle a bit. That's what leadership is about.
I said to a large group of very sophisticated industry analysts recently, how many of you think that we have a chance to not just hit our aspirational goal of being the No. 1 communications company, but the No. 1 IT company and the best business partner for our customers? More than half the room raised their hand. That shocked me. I would have been ecstatic with 10 to 15 percent.
Cisco is uniquely positioned. We've positioned architecture across enterprises and service providers. There will always be a set of tough competitors -- startups and otherwise. If there isn't, that's a bad sign; it means you're not in a good market. The good news is that we anticipate being in a good market for a good little while.
We have never hesitated in our commitment to partner success. That doesn't go up and down by year; it doesn't go up and down by economic times, or in market transitions. We are a partner-driven company, period.
There has never been anything more network-centric than what some people define as software in the data center. I would actually argue that it's a unified data center of the future, made up of hardware and software and ASICs and a unified fabric as well. That will evolve, not just as cloud, but as distributed capabilities throughout the entire network. So when you look at it -- hardware, software and ASICs -- if you execute it right, that will probably win.
This is a fourth generation occurring. The prior generation was servers and ASICs and the players like Intel, and a Dell putting it all together or an IBM or an HP putting it all together. Cisco does those combinations too. But don't think of us in the old model, think of us in terms of the Apple model. Think of architecture and where the differentiation is and how the money is made and compare that to the Android model. That's exactly what we're going to do with this.
Oracle, IBM, Juniper, HP, Dell. What is their year-over-year growth? Negative 2, negative 3, negative 4, negative 5, negative 8 percent. And remember two quarters ago, when Intel said we don't see the problems in enterprise spending and the global environment that Cisco's seeing? Four months later, they miss a quarter by $1 billion. There may be no reward for being transparent, but that's who we are as a company. Through all of this, we didn't falter. We led the industry.
In the last quarter, we grew 4 percent. The market had us growing at 4 to 6. Oracle was down 2, IBM down 3, Juniper down 4, HP down 5, Intel down 8, Dell down 8. Tell me: which partner do you want? We're the most partner-centric and loyal and we're the best growth opportunity for them on top and bottom line together. That doesn't mean we don't have to change -- we clearly do. But it means that if you partner with Cisco, you partner with a company that doesn't lose. When we need to reinvent ourselves, we do.
We told you we were going to beat Juniper. Now they're on the defensive. They're really being challenged now. Avaya, who was going to out-execute us in collaboration, make no mistake: They are struggling. We're beating them very bad.
Hewlett-Packard, which said we were going to exit the data center a year after we got into it, well, there's 22.5 percent market share in North America in UCS for us, and it grew at 58 percent last quarter while our peers grew in single digits. Perception-wise, we hit some rough sledding; we clearly did. We needed to change. But, our competitors went through the same and did much worse. There's not a challenge I'm aware of that our peers didn't have to go through too.
Look at our competitors from 15 to 20 years ago. You remember the "four horsemen": Cabletron, Wellfleet, SynOptics, Cisco, and probably 20 to 40 other companies. How many exist today? All gone except for Cisco. You could say the same about 10 to 15 years ago. All gone, except for Juniper, and right now, Juniper is questionable.
And 5 to 10 years ago, remember it was Alcatel-Lucent, Nortel, Ericsson, Siemens, and they were going to eat our lunch. They said we couldn't spell telephony. Well, we might not have been able to spell it, but we got 65 percent market share in business and IP telephony. And more recently, all these competitors who said they were going to pull away from us? We're about 70 percent market share in switching again, and margins are back to where they were, plus or minus 1 or 2 percent. If a partner had bet their future on any of the peers I just mentioned, would they have a future today? I'd have to challenge you that it would be extremely stressful. Consistency, industry leadership and innovation. If we do our job right, you haven't seen anything yet.
If the relationship is good, you need each other. In terms of an area of the market, we are going to continue to be very open. When we partner ... well, I'm not looking at my wife and saying I'm going to partner with you till I find somebody cuter. That wouldn't work. That's how we approach partnerships. We are far from perfect, but we do not say we're going to partner and then move on our partners. Almost every major vendor in the [industry] wants to partner with Cisco right now. The network is at the sweet spot of every major market transition going on. It's all about the network. Will EMC be a very good partnership for us? Maybe our best? Yes. Will we compete against VMware as it relates to networking? Absolutely. And when we compete, we don't lose.
We see storage evolving very rapidly. If you gave the choice between partnering with a player like EMC, and a very good partnership we have with NetApp, or you take it out to related markets like what we have with Citrix, or Red Hat, or Microsoft, or an OpenStack capability, or IBM, I vastly prefer the bigger picture. We've always had a philosophy where we'd like to make the pie much bigger and have a smaller percentage of the pie, instead of having a much smaller pie on our proprietary advantages but a much smaller revenue stream. It's our culture. We have an open culture; we think that's what wins.
Three to four years ago, we didn't see that coming as well. When Padmasree [Warrior] came over, I said to her, Padma, I need a cloud strategy. Fast forward to today, and I imagine you do your homework on this, we've got more than half of the customers who are truly using productive clouds. So that's our ability to adjust even if we don't see things coming quickly.
Software in the data center, which we've seen coming for a long time, why do you think we've done Insiemi? You know what we're going to do there: the best ASICs, the best hardware, the best software team and our speed to market. It isn't just about the number of transistors and capacity; it's about how many spins can you do, and can you get it out there in two to three years, or 12 months? All together, that's a tough team to beat.
If you think about the software aspects and the architectural play, this is right in our home-run area. Some of our peers will come at us with just software-only. Well, then they have to figure out what's in the network, which means they have to take snapshots and program those snapshots. Meanwhile, we open up our APIs. What happens then?
I actually think the most important [restructuring move] was what Gary Moore led: operational excellence across the board in each function and each department. It isn't about a transaction or a segment; it's really about becoming consistent in our operational excellence and how that will seed the money to be able to grow in the future. That's most important.
To your comment about boards and councils, that's fair. One thing at Cisco, we all have opinions. We don't mind people voicing them; that's very healthy. We don't mind going back and forth, but I would put the councils and boards and layers of management and the span of control and being fat in the middle as opposed to where you want to be fat as symptomatic of playing at a higher level. It's a different level. I'd say it was that overall approach. I tend to frame things in what is the big picture, and how do we get there. So, it was a combination of those things.
What you are hearing is a sense of competitiveness across the board at Cisco. I think it's time. We took more shots than maybe we should have, and I think as a family we need to be critical of ourselves without having to read about it in the press. We're going to have transparency but also a very direct message: When you compete against Cisco, you're going to lose. It is that confidence we have across the board. We all know we could falter, and anything I've said here shouldn't be taken as saying anything about this quarter. It's just that I wouldn't bet against us.
Remember what we always say about our acquisitions: Saying two-thirds works is saying one-third fails. In an industry where 90 percent of acquisitions fail, that's pretty good, but people tend to focus on the one we fail on -- the Flip we failed on. We should have moved FlipShare into the cloud and put it on every smartphone. We missed that move.
But, watch our big ones. That one, Flip, was $600 million. Starent was $3 billion; we've had tremendous success on the edge and that grew 30 percent again this last quarter. Tandberg, so important to our video strategy. And you've seen what NDS is doing -- that's a $5 billion acquisition and already off to a great start. So while people tend to focus on the negatives, that's just part of the culture of the industry press. We are the one that in the past years has had the courage to continue to acquire, and boy, if we hit two out of three, that's so much better than what anyone else in the industry does.
If you watch what we've done, we listen to criticisms. We're coming down Moore's Law faster than we ever have, doubling our price performance every 18 months. We came down very fast in switching about a year and a half ago. In terms of our ability to move pricing down, we absolutely will. Our price performance will increase dramatically as we move forward, but what we're seeing for us and for our partners is if you're selling a standalone product vs. a standalone competitor, you should still win, but the pricing margins on that are going to be smaller. If you're selling on architecture, your win rate goes up dramatically. Your margins go up dramatically.