Cisco’s CEO, Chuck Robbins, is a busy guy. I never see him not talking to a customer, partner, employee, analyst or some other person in the company’s ecosystem. Over the holiday break, I hope he took the time to put his feet up, light a cigar and reflect on what’s happened to the company he is leading over the past two years.
If we roll the clock back to Jan. 1, 2016, the stock was at $23.79, which was the lowest price point since April of 2014, and many Cisco investors were skeptical of Cisco’s future prospects.
A hefty amount of my business comes from my interactions with Wall Street, and two years ago, very few wanted to talk about Cisco. There were far more bears than bulls, and the feeling was that the cloud, software-defined networking (SDN) and other trends would slowly eat away at Cisco and it would go the way of Lucent, Nortel and so many other companies that were too stubborn to change their business models.
Today, the stock is almost $39/share, which is an all-time high except for the one year period in 1999/2000 when every stock was significantly overvalued. The turnaround in Cisco’s fortunes was remarkably fast. I understand the company has talked the market transition talk for about a decade, but it did nothing but tread water for a long time. It’s really just the past couple of years that Cisco has been in transition mode.
The other notable point of this achievement is that it did this without going private like so many other vendors have had to do (example Dell). Transitioning a company under the watchful eye of your investors is a little like changing the wings of a plane while it’s flying.
Strong leadership has been the key
So, how did Robbins pull this rabbit out of the hat? This certainly wasn’t any sort of Criss Angel type magic. Rather it was good, old-fashioned leadership and making the right decisions in the following areas:
- Doing what’s right for customers instead of what appears to be best for Cisco. This is perhaps the hardest thing for tech companies to do. Markets transition all the time and not always in favor of the vendor. Cisco is renowned for capturing market transitions, but it did so by entering new markets (VoIP, video, wireless) and taking share from incumbents instead of disrupting itself. When Cisco was faced with that task because of SDN, it got defensive and tried to convince customers to not do it. I remember discussing this in the first meeting I had with Robbins after he became CEO, and he said something to the effect of Cisco under his watch would never do that again.
If there is an industry shift that’s good for the customer, particularly in the area of networking, Cisco’s role should be to help them and not hold them back. Since then, Cisco has not only embraced SDN with its ACI solution, but ir is working to expand the definition to include intent-based networking through its “Network Intuitive” campaign.
- Acquisitions, acquisitions and more acquisitions. Buying other vendors has always been a key for Cisco growth, but the company has been in full shopaholic mode over the past two years, buying 16 companies. Almost all of these were in the areas of cloud, machine learning or security, with a few important vendors, such as Viptela and SpringPath, sprinkled in to improve Cisco’s competitive positioning. Acquisitions add new technology, open up market opportunities and add some significant talent to the company.
- Embracing the cloud. It’s fair to say that two years ago, the growth of Cisco wasn’t tied to the growth of cloud. The cloud drives a lot of bandwidth, which could stimulate network upgrades, but that isn’t a tremendously exciting story. Since then Cisco has done a complete 180 with the cloud, and many of its next-generation solutions are cloud enabled. Spark, Talos, Umbrella, Broadsoft, Viptela, Jasper and others were born in the cloud and have helped Cisco benefit from the current cloud gold rush.
Cisco also has also extended many of its products, such as ACI, to reach into public clouds. Over the next few years expect Cisco to continue to invest heavily in becoming a cloud-first company.
- Goin all in on artificial intelligence (AI). It’s my belief that in the future, the most successful vendors will be those that have the best data and the AI algorithms to interpret the information to gain new insights. It’s arguable that no vendor has more data of what’s happening across an enterprise than Cisco. We live in a world where everything is being connected at a furious pace, and Cisco is able to see traffic going to and from all these endpoints, including Internet of Things (IoT) devices.
Cisco has made a number of acquisitions in AI, including MindMeld, Saggezza and AppDynamics, which complement its own internal efforts in this area. The results of these investments are now coming to bear. For example, late last year Cisco held a media event to showcase how AI can improve meetings. It’s Tetration and intent-based networking offering will use AI to fundamentally change the way networks are run. Another example is Encrypted Traffic Analytics (ETA), which uses AI to find malware in encrypted traffic, something that has historically been impossible to do.
- Easy, peasy, lemon squeezy. Cisco technology has always been hard to deploy and manage. Another promise from Robbins was that Cisco would do the work to mask the complexity from its customers. The company has held true to his words, and products such as Meraki, Spark and ACI do a great job of letting its customers focus on innovation instead of having to sit at a command line making updates.
Cisco isn’t totally out of the woods
Despite the recent success, Cisco’s turnaround isn’t complete yet. Two of the company’s largest revenue streams, campus switching and routing, are both declining businesses and are holding the company back. Kicking these into gear would create another step function for growth.
Intent-based networking on the new Catalyst 9000s looks like it has potential. On its last earnings call, Cisco stated that about 1,100 customers have adopted the new switching platform so converting those to intent-based customers will give it the proof points to drive that business.
Routing appears more problematic. In fact, the acquisition of Viptela will likely cannibalize some of the massive install base of Cisco ISR routers. The purchase of Viptela is a great example of Cisco being more customer-first. A few years ago, I don’t think Cisco would have acquired a company that would threaten the ISR base, but the new Cisco will help its customers move to SD-WAN and adjust the business as it goes along. Regardless, the heyday of the ISR appears to be coming to an end, and Cisco needs to figure out what the future of routing is and how to stimulate that business.
Services and security will play an increasingly important role in Cisco growth
Two of the business units at Cisco that could move the needle on a company that’s nearly $50 billion in revenue are services and security. One fact that most people don’t know is that the services group is now the second-largest revenue stream at Cisco. The more dependent businesses are on technology and the faster they have to move, the greater the opportunity to insert services into the mix. Cisco recently announced new “Business Critical Services,” which are designed to help its customers make the jump to digital transformation. I’m expecting the uptake of these to be strong and for the services business unit to lead Cisco into its next era.
Security presents a massive opportunity for Cisco. At about $2.5 billion in revenue, Cisco is the largest enterprise-focused security vendor, but that’s only about 5 percent share of the overall security market. If Cisco executes on its plans to enable the network to be a sensor and enforcer and couples this with the threat intelligence from Talos, it could fulfill on the vision of a truly self-defending network. It won’t take much to double or even triple the security revenue, as it should be able to do things that few others, particularly startups, can’t.
Looking back, I’m sure it’s nice for Robbins to see the hard work pay off, but I doubt he will spend much time reflecting on the past. The world is changing faster than ever, and his task is to step on the gas and make sure Cisco’s pace of transformation continues.