Cisco Live 2014: Chambers Talks Rackspace Acquisition Rumors, His NSA Letter And More

Chambers Gets Candid

Cisco CEO John Chambers (pictured), joined by Cisco's President of Development and Sales Rob Lloyd, sat down with reporters this week at the 2014 Cisco Live event to answer some of the industry's most pressing questions.

In addition to addressing the Rackspace acquisition rumors head-on, the 19-year Cisco CEO spoke candidly about his succession plan, what keeps him up at night, and why he's asking President Obama to curb NSA surveillance.

Here's what he had to say.

Is Cisco In Talks To Acquire Rackspace?

"If you watch when we move into a market, the purpose of architectures -- whether it's the InterCloud architecture, whether it's our data center architecture, whether it's mobility, or security or collaboration or Internet of Everything -- is to prioritize what you do in each area. We don't move into a market unless we think we have a realistic chance of being 40 percent market share with sustainable differentiation. And we try not to move into markets that don't have really good gross margins unless they are unusually strategic for us. That is a market that is very, very price-sensitive that's taking on the big giants in Google, Facebook, and Amazon and Microsoft. So those are the types of scenarios we look more at a partnership opportunity than we do acquisitions. I'm not going to comment on did we look at [Rackspace] or not ... but it doesn't fit into our normal sweet spot and core competency area."

You Say There Will Be 'Brutal Consolidation' In The Industry. Why?

"In terms of consolidation in the industry, I have seen this movie before. And you saw it when I talked [during the Cisco Live keynote] about our peers, 15 or 20 years, being all gone. Great companies -- very, very good -- but they missed market transitions.

And now you are seeing this accelerate and the role of a pure hardware player will be challenged. We are software, hardware, ASICs and cloud as we move forward.

So I do think out of those top five IT players [Cisco, IBM, HP, Microsoft, and Oracle], only two or three will be really relevant five years from now. And it isn't a given that Cisco will be one of those. We have to change for that to occur."

How Did You Feel When You Saw Glenn Greenwald's Photos Of The NSA Tampering With Cisco Gear?

"That's a very good question which I will answer. I am not going to dodge it.

But take a step back. After 9/11, our country was in fear, and rightly so. At that time I was asked by President Bush… to be the co-chair for the National Infrastructure Advisory Council to him. And so I understand what's possible, and this country has been very fortunate there has not been an additional attack of that scenario. …If it was true -- there is no proof nor was there any indication that Cisco was involved -- [and] it could have very likely been a training program to say, 'Here is how you train to do something."' ... And this isn't an issue about U.S. high tech. It's Europe, it's Asia, it's China, it's Latin America. You've got to have a consistency of trust from the customers of the global supply chain."

Have You Had Any Reassurance That [Those Photos] Were Of An NSA Training Exercise?

"We clearly were in touch with the White House following this. It's not a surprise that we did it. They were extremely professional, very supportive, and very open."

In Your Letter To President Obama, You Said NSA Interceptions Could Hurt Cisco's Business. How?

"If something is coming out of India or China or Germany or Latin America, and if you don't trust the supply chain, either in terms of the manufacturer or all the way through, it breaks down what the Internet is all about. It becomes fragmented. So you've got to say, 'Regardless of how we got here, how do we move forward?'"

…I felt it was important enough [to reach out to] a president I believe in to say, 'Mr. President, can you lead us?' Because I think it does take on that level of meaning for the U.S. first, and then I'd be surprised if countries around the world don't come to the exact same conclusion. This issue is true for any high-tech company around the world and for most large governments around the world. So it's [about] how do we get the rules of the land and code of conduct in place."

How Will Cisco Ensure Customers Receive Unaltered Products Moving Forward?

"The reason that you bring this directly to the top is that I think the sense of urgency is important. And if you do this wrong, you have a fragmented Internet; you have manufacturing spread all over the world, etc. And as you know, distribution shipment is just one element of the issue. It's where is the plant where it's manufactured, etc. And the hardware is actually easier to follow through [to put] security measures on than the software is. So, from our perspective, we view that we have the most secure supply chain in the industry. We will obviously make it even stronger after this. But back to the security issue ... part of the reason we have been focused on this for a while is counterfeit, because the boxes counterfeits come look identical to Cisco. So we have been tightening up our supply chain a fair amount, and we also don't want to break down the global supply chain, which has made us so strong."

With The NSA Revelations, Where Do Your Obligations Lie: With Your Country Or Your Customers?

"That is a question that there is no right answer to. First, Cisco as a company is going to be the first global company. So we owe an obligation to the world first. Second, each of us have our responsibilities in our various countries, and my job is to be in India, an Indian company; in China, a Chinese company; in Germany, a German company; and say how do you drive that through.

But it's also more basic. If we don't play a role -- and this is why I did something that I would almost never do [with the letter], which usually I am very effective behind the scenes -- it would just take too long to get the governments focused in on this. So the number one issue is to our customers, and how do we become the first global company in terms of direction."

Aside From The NSA, What Keeps You Up At Night?

"Two things. The first is just a very candid one that says [something] about our culture. I follow every illness of every [Cisco] employee that is life-threatening for them, for their spouse or their children. And with a population of 70,000 and probably an extended family of 250,000, it's every day.

…The thing that keeps me up on the business side is we are so close to being able to implement the architectures, the industry transitions that we talked about, the ability of our Application Centric Infrastructure, which means for the first time the network gets not only smarter, but you can move applications wherever you want, with the Internet of Everything -- all of these are network-based. For us to miss this window, that's what keeps me up at night."

What's The Number One Reason A Customer Would Want To Deploy ACI?

"First is a common policy for the data center, cloud, WAN all the way out to the access [layer]. And when you think about what Application Centric Infrastructure does, it's remarkably simple. It's what I said the first day [at Cisco Live]. It's applications, network, scale and security.

And as basic as that sounds, that's how we entered the original cloud and data center [markets]: simply compute, storage and the ability to combine that with the network.

So I would say first is the ability to really bring the network to life with common applications and run it wherever you want and common policy and management, which really makes this usable."

Any Updates On Your Succession Plan?

"Well, my health is good -- thank you for asking.

What we said a little bit less than two years ago is [that's] the time period, and the next time you hear from me [on that] will be when we make that transition. I've got a number of key leaders in this company that are very capable of doing this job, including [Rob Lloyd] and you will see us looking at those key leaders and decide what will be the right move for the company at that time.

It'll be a reasonably short transition to hand the baton to the new CEO. But it's kind of like [being] a parent: Your legacy is your kids. You want your kids to be successful and happy. I want the next generation of leaders to do exactly what the generation before them has done at Cisco, which is to be very successful."