• 04/05/2011
    10:58 PM
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Practical Analysis: Cisco's Conundrum

Why John Chambers' memo to employees underplays the challenges ahead for the world's largest networking company.

As noted earlier, Cisco hasn't been flatfooted about all this. For example, in the data center, it saw that there was a good chance that private cloud environments could be a fertile ground for single-vendor systems, and that if it didn't have a server offering, it could lose one of its most lucrative enterprise markets -- that being data center switching, once dominated by the Cisco 6500 family and now the Nexus family of switches.

But in creating its UCS product line, it has started a war on multiple fronts, with Hewlett-Packard as the main enemy combatant and IBM (along with Juniper and Brocade) and Dell not too far behind. Beat up as HP may seem to be, it has the products, services, and reach to go toe to toe with Cisco in an awful lot of data center environments. And in most cases, HP will likely win that business if it comes down to a unified server, storage, networking, and network/system management sale. That UCS is a novel product is a short-term problem for Cisco. For many customers, it's simply a bridge too far with a technology that's untested. Cisco's 2010 total sales of just $181 million for UCS show just how far it has to go in that market.

Cisco's unified communication products face similar challenges. While at one time it was a safe bet that Cisco would produce better products than those from its beleaguered legacy PBX competitors, it did so by putting a lot of capabilities into the phone, which suddenly became about as expensive as the computer sitting next to it. Microsoft's Office Communicator replicated many of those functions, letting buyers look to cheaper, less capable phones with the laptop becoming central to UC.

And while fixed-mobile convergence hasn't happened as predicted, a new generations of tablets with roots in the telecom industry threaten to shake up enterprise unified communications even more. The days of pushing $400 landline phones are about over, particularly in light of $400 tablets that can do the same functions while providing an immensely superior user interface, on a device that users can take with them.

Cisco faces challenges like these in most parts of its business, and its competitors are almost universally accustomed to living with smaller profit margins. And while it would be foolish to count Cisco out of any market it wants to compete in, it would be equally foolish to expect that Cisco will be able to maintain its historical growth and margins.

But that doesn't mean that COO Moore doesn't have an important job ahead of him. Like any company of Cisco's size, it suffers under its own weight. Decision-making is said to be cumbersome. Good ideas that don't come with billion-dollar visions get lost or pushed aside. The need to service a broad and diverse customer base is an expensive proposition that can slow product development and bloat engineering and support teams. All of those challenges need to be addressed within Cisco's walls, but even if Cisco gets it perfect, there's still that new batch of competitors.

For enterprise IT planners, there's an opportunity in all this. If you're tired of eye-popping Cisco price tags, there are less expensive, worthy products from viable competitors. Closer to the core of Cisco's strategy, however, it may be tougher to find alternatives. Complex routed infrastructures and wireless networking are two areas where Cisco still commands huge market share, and where competitors are the ones with a lot to prove. On the flip side, for those who love Cisco, there's the opportunity to do even more with the company.

Art Wittmann is director of InformationWeek Analytics, a portfolio of decision-support tools and analyst reports. You can write to him at

To find out more about Art Wittmann, please visit his page.

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