Last Friday Cisco executives meet with technology analysts at its Financial Analyst Conference in New York. Topics such as strategy, M&A, competition, data center and software were discussed. Here a few highlights:
Cisco is launching a massive global marketing campaign called "Tomorrow Starts Here," which will formalize its aspirations to become the No. 1 IT player in the world. The paradigm shifts around cloud, mobile and services are all dependent on the network. This shift represents a $4 trillion market.
Cisco argued it is already a software company and plans to control, not be controlled by, the shift toward software in the network and data center. Cisco's software business is currently about $6 billion, and Chambers and other executives said several times at FAC that it intends to double that revenue number within five years.
It was only three years ago that Cisco launched its Unified Computing System (UCS) and was laughed at by the server establishment for its apparent hubris. It's Cisco that's laughing now, with a 17 percent global market share in x86 blade servers and bona fide disrupter status in the overall server market. Cisco's data center TAM will be about $62 billion by 2015, growing at a 7 percent CAGR. Chambers disclosed one interesting little tidbit: Cisco server and data center networking products are now used by nine of the world's top 10 largest data center customers, everyone except Google.
Security is a major area of focus for Cisco, said Chambers, who told reporters that Chris Young, Cisco's first-ever SVP-level executive for security, has been given essentially a "blank check" to acquire, hire and build in Cisco's security practice. Security, along with services, emerging markets and software, is one of Cisco's four investment priorities heading into the new year.
Chambers said Cisco will not enter a market unless Cisco thinks it has a "reasonable probability" of getting 40 percent market share in that market. At the very least, he added, Cisco has to achieve 20 percent. "If you don't have at least 20 percent [of a market], you can get wiped out very quickly," he explained.
Along with its validity as a data center player, another bet Cisco made and won, Chambers said, was its assertion that service providers would want to consolidate their spending with a preferred vendor, not buy piecemeal from multiple different telecom infrastructure providers. Cisco is going gangbusters in service provider business and boxing out competitors left and right.
Cisco will continue to partner, rather than build or acquire, in storage. Chambers even used the same pie metaphor, saying that while Cisco would own more of "the pie" if it owned the storage, the pie itself would be smaller overall, and Cisco would in fact be part of fewer deals than it might be with existing storage partners like EMC and NetApp.
The traditional seven-layer OSI model of networking is changing, said Chambers. Thanks to the shifts toward cloud and mobility, it will look more like two or three layers: a flat infrastructure layer, a platform layer and an application layer.
Cisco's M&A strategy came up plenty, and Chambers told analysts that Cisco should have made more -- not fewer -- deals over the past few years even as its M&A activity slowed thanks to a global restructuring. Cisco likely lost 1 percent in potential revenue and profitability by not acquiring even more than it did in the past two to three years, Chambers said, and it had stopped making major deals like Starent and Tandberg that added significantly to its growth.
Chambers and Cisco CTO and Chief Strategy Officer Padmasree Warrior, who now runs Cisco's M&A, said Cisco's $1.2 billion acquisition of cloud-managed networking provider Meraki was an ideal Cisco deal based on the technology, talent and market opportunity it acquired. "Think of Meraki as a software company," Chambers said, adding that Meraki's technology potentially pulls through a lot of Cisco networking in the midmarket. "It was one of the hottest companies in the Valley, and it could have gone anywhere it wanted. It wanted to be part of Cisco." Expect more mid-level Cisco deals of that sort, the company said.
In a roundtable with journalists, Cisco didn't exactly call the HP competitive threat vanquished, but Chambers earlier in the day had asked the analyst crowd if any thought HP would be the most important technology company in the world in five years, and not a single hand went up. Chambers later told journalists that the current market and HP's struggles provide a "moment to take share in almost all categories." When later asked by CRN if Cisco considers Dell a competitive threat, Chambers said that Dell likely considers Cisco a competitive threat. "Michael Dell and I are good friends," he said, adding that Cisco and Dell have sought ways to work together over the years, and there hasn't yet been a major area that made sense.