Cisco’s going back to basics

Kicking off Cisco Systems Inc.’s analyst conference, president and CEO John Chambers characterized the past year as a humbling experience.

While the networking giant has gained market share against its competitors, Chambers said the slowdown in the economy that began in January was unforeseen and signaled a need to “go back to basics.” For Cisco, Chambers said, this means the company must concentrate on cash flow, profits and productivity. This time He didn’t tout the 30 per cent growth in annual revenues that Cisco has traditionally claimed were possible.

“Orders are linear and on expectation,” Chambers said. “We’re going to focus on the available market; we are confident we’ll gain market share.” Chambers made the remarks in Santa Clara, Calif., to an audience, of 350 industry and financial analysts, down from 500 who attended the conference last year.

Galen Schreck, an analyst at Cambridge, Mass.,-based Forrester Research Inc., who was at the conference, said, “Cisco’s market share is bound to grow in the enterprise although sales may not be huge.” He added that “customers are looking for a stable vendor that won’t leave them high and dry.”

As large corporate users, which are Cisco’s bread-and-butter customers, struggle to survive, selling them network equipment and services in the coming months will hinge on showing how the investment will increase sustainable productivity, Chambers said.

For many large customers, Cisco’s own productivity, now running at US$450,000 in revenue per employee, gives Cisco credibility when it touts intelligent networks as the means to get more from a company’s workforce, Chambers said. Cisco has more than 38,000 employees.

There’s been a fundamental shift in the relationship of productivity gains to movement between economic cycles, according to Chambers. “We’re seeing productivity increase at the end of an economic cycle instead of decrease, even in the face of recession,” he said.

Although Cisco’s use of its own technologies to grow and sustain its business has given it a powerful model that it can tout to enterprises, Chambers acknowledged the same isn’t true for the San Jose-based company’s efforts among service providers.

Schreck said that service providers “are less likely to look for a single source of technology and are comfortable with integrating their own networks with homegrown management tools.”