20 Take-Aways From Cisco's Financial Analyst Conference2:00 PM EST Mon. Dec. 10, 2012
Cisco on Friday invited Wall Street and technology analysts to its Financial Analyst Conference in New York City -- an annual event at which Cisco's top executives share strategy elements, talk about the coming years and usually try to make a little news, too.
Between main stage presentations and an intimate roundtable with CRN and other select media, Cisco's top executives, including CEO John Chambers (pictured), offered pearls on SDN, M&A, competition with the likes of HP and Huawei, and how Cisco's going do in software and what it's done in data center.
Cisco starting Monday is launching a massive global marketing campaign called "Tomorrow Starts Here," which will formalize its aspirations to become the No. 1 IT player in the world. The paradigm shifts around cloud, mobile and services are all dependent on the network, argued Chambers, and that shift overall is about a $4 trillion market when all is said and done.
Cisco argued it is already a software company and plans to control, not be controlled by, the shift toward software in the network and data center. Cisco's software business is currently about $6 billion, and Chambers and other executives said several times at FAC that it intends to double that revenue number within five years.
It was only three years ago that Cisco launched its Unified Computing System (UCS) and was laughed at by the server establishment for its apparent hubris. It's Cisco that's laughing now, with a 17 percent global market share in x86 blade servers and bona fide disrupter status in the overall server market. Cisco's data center TAM will be about $62 billion by 2015, growing at a 7 percent CAGR.
Chambers disclosed one interesting little tidbit: Cisco server and data center networking products are now used by nine of the world's top 10 largest data center customers, everyone except Google.
Cisco was asked several times by analysts how its networking legacy and data center momentum related to the big data trend. That's a simple one, argued executives: Big data infrastructure relies on a sophisticated network now more than ever.
Security is a major area of focus for Cisco, said Chambers, who told reporters that Chris Young (pictured), Cisco's first-ever SVP-level executive for security, has been given essentially a "blank check" to acquire, hire and build in Cisco's security practice. Security, along with services, emerging markets and software, is one of Cisco's four investment priorities heading into the new year.
While there are plenty of questions about Cisco's place in the emerging software-defined networking (SDN) ecosystem, David Ward, CTO of engineering and chief architect, says the company's place is assured.
"Hopefully in 2013 we can get beyond the SDN hype cycle and into proof of concepts," Ward told analysts at FAC.
Ward also said that the first APIs that are part of Cisco's SDN-centric onePK initiative will be generally available by the end of 2013 and will cover its IOS and IOSXR operating systems.
Cisco was asked several times what its plans are for working with industry-wide open-source projects such as OpenStack. Paul Perez (pictured), vice president and CTO for Cisco's Data Center Group, said Cisco views OpenStack as strategic and said it plans to work with important projects rather than completely go its own way on certain initiatives.
"HetNet," or heterogeneous networks, is the increasing trend toward having multiple types of access nodes in a wireless network, from macrocells to femtocells. Kelly Ahuja, senior vice president and general manager for Cisco's Service Provider Mobility Group, said HetNet is a priority for Cisco and that Cisco sees its carrier-grade wireless deals getting bigger and bigger.
Chambers said Cisco will not enter a market unless Cisco thinks it has a "reasonable probability" of getting 40 percent market share in that market. At the very least, he added, Cisco has to achieve 20 percent.
"If you don't have at least 20 percent [of a market], you can get wiped out very quickly," he explained.
Along with its validity as a data center player, another bet Cisco made and won, Chambers said, was its assertion that service providers would want to consolidate their spending with a preferred vendor, not buy piecemeal from multiple different telecom infrastructure providers. Cisco is going gangbusters in service provider business and boxing out competitors left and right.
Chambers and other executives reiterated comments Chambers made to CRN earlier this fall: that Cisco will continue to partner, rather than build or acquire, in storage. Chambers even used the same pie metaphor, saying that while Cisco would own more of "the pie" if it owned the storage, the pie itself would be smaller overall, and Cisco would in fact be part of fewer deals than it might be with existing storage partners like EMC and NetApp.
Cisco maintained that it will continue to partner with vendors like EMC and VMware even though both have made moves that might be construed as competitive to Cisco. That's the way it is, Cisco executives said: Be clear on your intentions and you can both partner and compete with major vendors like EMC and VMware, as well as Microsoft and IBM.
"Our partners, even if they're competitors, trust us," Chambers said.
All the same, said Cisco, it's strengthened its relationships with Microsoft and Citrix in virtualization because it "didn't want to become too dependent on one hypervisor."
One of Cisco's most important opportunities is in services, which executives have been saying for a few quarters now will become a bigger piece of Cisco's overall revenue. Chambers and CFO Frank Calderoni (pictured) told analysts that services will grow from a roughly 20-21 percent share to 25 percent and even 30 percent over the next few years. Cisco has about 65 percent gross margins in services.
Chambers, Calderoni and Cisco Presidents Rob Lloyd and Gary Moore later told reporters that Cisco will continue to protect partner margins on services deals thanks to programs like its eight-month-old Cisco Services Partner Program (CSPP), and that "you'll never see a hard deck strategy" at Cisco or see Cisco acquire systems integrators to compete with its partners for services.
The traditional seven-layer OSI model of networking is changing, said Chambers. Thanks to the shifts toward cloud and mobility, it will look more like two or three layers: a flat infrastructure layer, a platform layer and an application layer.
Cisco's M&A strategy came up plenty, and Chambers told analysts that Cisco should have made more -- not fewer -- deals over the past few years even as its M&A activity slowed thanks to a global restructuring. Cisco likely lost 1 percent in potential revenue and profitability by not acquiring even more than it did in the past two to three years, Chambers said, and it had stopped making major deals like Starent and Tandberg that added significantly to its growth.
Chambers and Cisco CTO and Chief Strategy Officer Padmasree Warrior (pictured), who now runs Cisco's M&A, said Cisco's $1.2 billion acquisition of cloud-managed networking provider Meraki was an ideal Cisco deal based on the technology, talent and market opportunity it acquired.
"Think of Meraki as a software company," Chambers said, adding that Meraki's technology potentially pulls through a lot of Cisco networking in the midmarket. "It was one of the hottest companies in the Valley, and it could have gone anywhere it wanted. It wanted to be part of Cisco."
Expect more mid-level Cisco deals of that sort, the company said.
Cisco in the past two years has used January's CES event to launch consumer and service provider-centric video products and services. Kip Compton, Cisco vice president and general manager, video and content platform, said this year's CES launch will be about "integrated video offers." Given that CES 2013 will be the first since Cisco's blockbuster $5 billion acquisition of U.K.-based NDS Corp., expect that to be front and center as part of its announcements.
Chambers acknowledged the ongoing softness in Cisco's collaboration group -- down 8 percent in its fiscal quarter -- is something the company is attacking. A key move made during its restructuring was to consolidate collaboration engineering groups under one leader.
It also recently made a change in the group's overall leadership, parting ways with former SVP O.J. Winge and hiring Rowan Trollope, a 21-year veteran of Symantec, as its new senior vice president and general manager for the Collaboration Technology Group.
Cisco was asked if its integrated video priorities will bring it head-to-head with Apple in certain areas, but Chambers and Cisco executives maintained they want to stay friends with Apple and collaborate where it makes sense.
"You don't bet against Apple," Chambers told journalists.
In a roundtable with journalists, Cisco didn't exactly call the HP competitive threat vanquished, but Chambers earlier in the day had asked the analyst crowd if any thought HP would be the most important technology company in the world in five years, and not a single hand went up. Chambers later told journalists that the current market and HP's struggles provide a "moment to take share in almost all categories."
When later asked by CRN if Cisco considers Dell a competitive threat, Chambers said that Dell likely considers Cisco a competitive threat. "Michael Dell (pictured) and I are good friends," he said, adding that Cisco and Dell have sought ways to work together over the years, and there hasn't yet been a major area that made sense.