On fire since a decent quarterly earnings report in which Cisco revenues rose by 7% and forecast 3 to 5% growth next quarter, the company CEO John Chambers was hugely confident this week.
He declared the company’s competitors vanquished, especially Facebook and VMware, and said no one should worry about Cisco’s profit margins in the face of increased competition. He also said that he is in no mind to retire – Chambers, who is 65, said he ran 4 miles in the morning in his fastest time ever.
Cisco will “crush Facebook”
Just an hour before Cisco’s earnings call, Facebook announced its progress in building a new type of computer network, and that it’s using products developed itself that will be shared with the world. Facebook wants to encourage others to join in building the same kind of network – but Cisco is still the dominant player in network technologies, so Facebook’s plans seem to rebuff Cisco’s approach.
Facebook is of course not alone in trying to build out open source networking systems. Various startups such as Plexxi and Pluribus have similar ideas that use off-the-shelf components and open source software – they claim their networks are less expensive and can be managed more easily than Cisco’s.
Cisco terms these other solutions “white label” or “white box” networks, which are mainly build using processors bought from companies such as Broadcom rather than custom chips that Cisco makes for it own hardware. That’s stirred up concern amongst analysts who believe those efforts might eventually hurt Cisco. But Chambers doesn’t believe that’s the case:
“We’re seeing no unusual competition, from white label or white box, nor will we in the future,” he stated.
Customers are buying Cisco’s products instead of from competitors, “simply because of security. In this environment, they aren’t going to take risks,” said Chambers.
“This is where we’re just going to crush the white label. There’s got to be a security architecture approach. All it takes is one breach and you’ve done more damage to your brand as a company.” he added.
Cisco is also a huge vendor of computer security products, and sold around $416 million worth last quarter.
Chambers also claims that the company is planning to beat VMWare, as it’s selling its own network software which competes with Cisco products. VMWare and parent company EMC are still close partners for Cisco, and in fact have a joint company called VCE which sells lots of Cisco server hardware.
However, VMWare bought a startup called Nicira for $1.2 billion in 2012, aiming to become a direct competitor of Cisco. “VMware is a competitor”, Chambers said. “We’re going to view them as a competitor and we will beat them and have fun doing it. I wish I was a better person, but I’m not.”
No concerns about profit margins
Chambers attempted to allay fears about the company’s profit margins. Cisco has gross margins of around 60% and that looks set to continue, said Chambers. That’s partly due to Cisco’s efforts to expand into new and higher profit segments such as consulting and the Internet of Things.
“I’ve never been more comfortable with any area of our business than our ability to maintain gross margins. It’s a mix issue”, he says. “I think our gross margins have been the most predictable part of our business.”
He also proclaimed: “I’ve never felt better about our business and future. We’re back.”
SOURCE: Business Insider
Larry Banks is a keen follower of technology and finance. He has worked for a variety of online publications, writing about a diverse range of topics including mobile networks, patents, and Internet video delivery technologies.