Could Cisco Be The Next Company To Split?

Just hours after Hewlett-Packard Monday confirmed plans to split itself in two, investment firm and analyst group RBC Capital Markets urged Cisco Systems to do the same.

According to Mark Sue, managing director and senior technology equity research analyst at RBC, the $48 billion networking giant is simply too big for its own good and lacks the agility needed to compete with "an onslaught of nimble players."

"Our surveys show Cisco has too many people, often takes too long to get things done and has become reactive to changing market dynamics," Sue wrote in a research note, according to a report Monday from Barron's. "Big layoffs and restructuring have become routine for the past four years. A more proactive change may kick Cisco's underperforming stock into gear."

Related: Partners: HP Split Spells Trouble For Competition

id
unit-1659132512259
type
Sponsored post

Sue specifically suggested Cisco separate its core routing, switching and services business from its cloud computing division. He said the core networking and services group could operate as "Cisco Solutions," while the cloud unit, or "Cisco Cloud," could house the company's cloud wireless, security and data center offerings.

"Cisco Cloud could pursue bold deals to acquire early stage tech companies and invest in R&D to drive growth from new technologies and solutions without concerns about cannibalizing Cisco’s legacy platforms," Sue wrote, according to the report.

Cisco, San Jose, Calif., in March created a dedicated business unit around its Intercloud hybrid cloud strategy, called the Cisco Cloud Sales and Go-To-Market division. The new group is head by Nick Earle, Cisco's former senior vice president of Worldwide Services Operations, and sits within its broader services group.

Solution providers said they wouldn't welcome the idea of a Cisco breakup.

"I don't think that would make sense," said Dave Frederickson, vice president of sales and business development at Long View Systems, a Calgary-based Cisco partner. "They would water down the brand and, as a strong partner of Cisco's, if Cisco spins out its cloud business, would that company drive the same alignment with us? Probably no."

Mike Girouard, executive vice president of sales at TekLinks, a Birmingham, Ala.-based Cisco partner, said he would fear Cisco taking more cloud deals direct if the cloud unit were spun out.

"If they did that, I think there would be some real concerns that that cloud business would play direct or at least minimize the margins of the partners included," he said. "I think it would be pretty scary for Cisco partners."

What's more, Girouard said, Cisco's Intercloud strategy seems too early on to form the foundation of a stand-alone business.

"A year from now, it might be more of a conversation," the partner said.

Cisco did not immediately respond to CRN's request for comment.

HP's split into two independent companies -- one focused on its PC and printing business and one its Enterprise Group -- is one of several recent breakups in the high-tech world. Just last week, eBay revealed plans to spin off its PayPal business, while networking vendor Juniper Networks just completed the sale of its Junos Pulse mobile security group.

PUBLISHED OCT. 7, 2014