Cisco’s resolve unflagging: Analysis

LAS VEGAS — Despite the specter of perhaps the largest layoff in Cisco Systems Inc.’s history overhanging its annual customer conference , the company conducted business pretty much as usual at Cisco Live!

The conference, attended physically by 15,000 and virtually by 40,000, was heavy on topics such as data centre, cloud – and Cisco’s moves to correct the mistakes of recent quarters and recent years. Indeed, CEO John Chambers’ keynote was almost contrite in tone as he sought to reassure customers that Cisco [Nasdaq: CSCO] will come through its current challenges stronger and more resolute – in every aspect of the company.

“We’re structuring Cisco to be leaner, drive innovation faster,” Chambers told the customer audience. “We’ve got to be easier to do business with, include you in driving our product direction, share our roadmaps, have an easy-to-use product portfolio. But innovation is the buzzword on where we’re going to go.”

To get there though, Cisco’s expected to cut between 5,000 and 10,000 jobs beginning in August, the first month of its 2012 fiscal year (Cisco’s biggest workforce reduction to date took place in 2001 when it let 8,000 people go during the dot-com bubble.). Cisco has lost share and profits in switching, and its foray into consumer electronics has been disappointing.

Many blame Cisco current problems on ambitious incursions into 30 or so adjacent markets through 145 acquisitions over two decades that distracted the company from its core routing and switching business. Cisco also had a bloated management structure that stalled decision making, delayed product development and slowed the company’s progress.

The upheaval still to come at Cisco did not dilute the company’s mission at Cisco Live! The company announced the most significant upgrade in years to its most successful switch – the Catalyst 6500. Cisco also enhanced its data center and cloud portfolio with extensions to its Unified Computing Systems blade server chassis, its WAAS WAN acceleration appliances and its IronPort security line.

The Catalyst 6500 upgrade was a curious announcement as the company had cited Catalyst 6500-to-Nexus 7000 switch migration and transition as a factor that eroded profits in its fiscal second quarter and helped set in motion the restructuring that Cisco’s now facing.

Some viewed the announcement as an attempt by Cisco to backpedal on the Catalyst/Nexus transition in an effort to preserve profit margins in switching; or as an indication that Nexus was meeting some resistance in the US$42 billion Catalyst 6500 base.

Cisco said it’s merely a case of the market is “bifurcating” into separate requirements for the enterprise campus vs. the data centre.

It also gave Cisco an opportunity to take another swipe at bitter rival Hewlett-Packard Co. [NYSE: HPQ]. Indeed, if Cisco was preoccupied with the impending layoffs it did not show in the feistiness with which it positioned the Catalyst 6500 Sup 2T against HP’s A9508 switch.

“What kind of innovation have we seen come out of HP?” asked Scott Gainey, Cisco director of marketing for Unified Access Solutions. “The competition is on notice: Cisco does intend to compete and we intend to compete aggressively.”

HP responded in kind, noting that Cisco was misleading the industry and its customers in comparing the Sup 2T to the A9508.

The UCS enhancements are an effort to enhance the scalability and performance of the data centre consolidation system. Cisco added new fabric interconnects, a virtual interface card, a chassis I/O module and an update of its UCS management software to the UCS portfolio.

The extensions are intended to address challenges IT managers face in adopting virtualization, controlling costs, and scaling to meet growing business demands.

But in addition to significant product announcements, the Cisco Live! conference also tackled some thorny issues that customers face. While Cisco is pushing hard on developing and selling equipment to support the growing amount of video traffic in IP networks — 91 per cent of IP traffic will be video by 2014, the company claims — it intimated that video may not be ready for the cloud, and vice versa.

Network topology issues may preclude enterprises from posting internally sensitive videos to a cloud service like YouTube, says Guido Jouret, Cisco’s vice-president of enterprise video and CTO of emerging technology.

Cisco Cloud CTO Lew Tucker hosted a panel of users, integrators, equipment manufacturers and service providers to discuss if enterprises in general are ready for the cloud. The panel concluded that several wrinkles regarding software licensing, SLAs, cost-effectiveness, reliability, trust in the cloud provider, auditing and transparency, standards and interoperability, data privacy, and whether business critical applications can truly be migrated to the cloud need to be ironed out before cloud computing can capably replace a private IT infrastructure.

Harris Corp., used the analogy of airline reliability in assessing cloud reliability.

“Cloud has to do IT delivery cost-effectively, but also do it with safety,” said Wyatt Starnes, vice-president of advanced concepts and cyber integrated solutions for Harris Corp.’s government communications systems division. “There are five orders of magnitude difference in business maturity (between the airline and IT industries): Nine- or 10- 9s on passenger safety for airline industry” vs. five 9s for computing. “Our measure for successful cloud delivery should not be compared to data centers; it should be compared to the airline industry.”

Cisco CTO Padmasree Warrior tackled, among other topics, the issue of whether customers want and can benefit from a single-vendor network vs. a multivendor implementation. Cisco, by pushing end-to-end network architectures, is a huge proponent of the single-vendor approach as it enhances security, reliability, multidevice interoperability and quality-of-service, the company claims.

This philosophy has been taken to task by industry pundits who claim that single-vendor networks do not lower total cost of ownership nor simplify operations.

Cisco also used Cisco Live! to showcase some data center customers that are local to Las Vegas. The press toured an innovative data center that patented its own power and cooling technique for a 400,000 square foot, 100 megawatt, highly secure collocation facility just off the Vegas Strip.

Armed security guards dressed in black and conducting themselves like military personnel escorted media and analysts through the facility, which is operated by Switch as a SuperNAP. It hosts racks of servers, switches and storage for high-level enterprise and government customers, including EBay, Cisco, cloud provider Joyent, and Global Cash Access (GCA), a Las Vegas-baseed leading provider of cash access, handling and information services for 1,000 casinos worldwide.

GCA is a Cisco Nexus switch, UCS, ASA firewall and MDS SAN customer — and also a customer of Cisco integrator Nexus IS of Valencia, Calif. — contracting with Switch to collocate one data center at SuperNAP, while the company operates another at its Las Vegas headquarters.

GCA said it selected Cisco, Nexus and Switch to ensure 100 per cent uptime for its casino cash handling transactions, which numbered 90 million and delivered US$18 billion to casino floors in 2010. The company delivers over a half million dollars to casino floors worldwide every half hour, says GCA CEO Scott Betts.

So despite the gloom of the imminent layoffs, Cisco did not lose a beat at the confab.

Said Chambers: “Where will we be two to three years from now? The leader in our five company priorities, faster on innovations, simplified, leaner, your trusted networking/IT and business partner. We will make faster decisions and be a more focused execution machine.”

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