Cisco CEO Has That '90s Feeling All Over Again


John Chambers says networking leader is in best position in five years


Cisco CEO John Chambers is back at the top of his game, with a bit if of that 1990s feeling again, after a long, five-year absence. Although it's tempered by the work ahead for his company and the stinging memory of the collapse of its business after the dot-com implosion, it is there just the same.

"I'm having fun again," said Chambers in a one-on-one interview with VARBusiness this week during his company's annual three-day conference for financial analysts. "During the '90s, it was a lot of fun. Much of the reason was that we were building an organization--we were making a difference in companies, in governments and in individuals' lives in a growth environment. And we are doing that again."

The reason for the optimism this time around? Chambers said that his company's product portfolio, go-to-market strategy and partnering philosophy have not been this competitively aligned at any time in the past five years. That's significant given his belief that Cisco, which generated sales of $24.8 billion in fiscal 2005--above the company's previous all-time high of $22.3 billion achieved in fiscal 2001--is at another inflection point. Cisco is transforming itself from a connectivity infrastructure company into a full-service communications play, emphasized Chambers and other company executives this week in presentation after presentation. If done right, the transformation will allow Cisco to play a greater role not only in its home IT industry, but also in telecommunications, entertainment, education, medicine and other fields.

To do that, the company is aggressively pursuing a four-pronged strategy that hinges on data, voice, mobility and video. The latter piece will come into the picture after Cisco completes its $6.9 billion bid to buy video giant Scientific-Atlanta. Chambers says video is the key killer application for the next wave of Internet computing and telecommunications.

"Cisco is right in the sweet spot as we move from a networking company being the plumbing of the Internet to a communications solutions company [that is] the implementer of the Internet's capability as the network goes from being a transport mechanism to a platform," Chambers said.

Wall Street has yet to be wowed by the company's plan. Its shares, for example, have traded within one of the tighter bands of any IT company Cisco's size--this week in the $17.73 range. That's down from a 52-week high of $20.25 achieved in June, but up from a $16.83 hit in mid-October. (Officials this week reaffirmed previously provided guidance and said they are hopeful Cisco can grew between 10 percent to 15 percent over the next three years.)

Chambers acknowledged challenges ahead. For one, he noted that his company, like Hewlett-Packard, is one of the few IT giants trying to make it in every market, from the home to the enterprise.

"As routers, switches, wireless, and the home and the data centers blur, it requires a much more effective teamwork philosophy, but also process to make that work more effectively," he said. "That requires us to transition our company at speeds and move to where the market is going at a faster speed that we did during the '90s. The same thing is true of our partners."

Partners are indeed going to be required to move quickly. That's especially true due to the challenges that Cisco channel executives are planning to unveil in the spring time frame. They revolve around partners making tough choices as to whether they want to be general contractors in the Cisco partner program or specialists. Beginning next year, partners are going to have to make more concrete choices. Cisco believes these changes are necessary to ensure that it achieves its growth and customer-satisfaction goals, and to preserve profitability and viability among its more than 2,000 key partners.

As for Chambers, he's now wondering if his company can do what few in IT have--namely, defy the law of large numbers that seems to limit the growth of the industry's largest players.

"[Companies] in our industry usually plateau out at a certain level after they reach a certain size. We clearly believe we will be an exception to this rule," he said. "Part of it is the role that the network is going to play in the future of all IT. I would say the IT revolution will be built around the network. So, this is a classic example of, 'We appear to be in the right spot at the right time.' We're just trying not to mess it up."

If customers buy into Cisco's architecture plans and not merely its point products, Chambers believes the law of large numbers will actually work in his company's favor.

One reason customers should be listening: Cisco's push into applications.

The company has made several acquisitions of applications-oriented companies and this week announced its latest new advanced technology opportunity for partners: applications networking.