Capstone project of ASU's MBA program.

1. “Does Cisco
Have a John
Chambers
Problem?”
Presented by Maximum Overdrive:
Ricky Av, KC Chugh, Rachel Nichols, Evan Rand and Laura Winger

2. • Founded in 1984
By Stanford computer
scientists Len Bosack and
Sandy Lerner
Massbus-Ethernet Interface
Subsystem (MEIS) - 1985
AGS multi-protocol router - 1986
• CEOs:
Bill Graves 1987-88
John Morgridge 1988-95
John Chambers 1995-present
• IPO on Feb 16, 1990
Cisco was named for the city San
Francisco, reflected also in its
logos, although it is now
headquartered in San Jose, CA
HISTORY

3. • Core competencies are in networking
technology:
• Routers
• Switches
• Wireless security
• Three tests:
1. Provides potential access to a lot of different
markets
2. Make significant contribution to the perceived
customer products
3. It is difficult to imitate
CORE COMPETENCY
• Physical security
• Network management
• Software
• Interfaces
• Modules

4. Sep 93 Crescendo Communications LAN switching $95
Jul 94 Newport Systems Solutions Routers $95
Oct 94 Kalpana
LAN switching
$204
Dec 94 LightStream $120
Aug 95 Combinet Remote desktop software $114
Sep 95 Internet Junction Gateway $6
Oct 95 Network Translation Firewalls $30
Nov 95 Grand Junction Networks
LAN switchingApr 96 StrataCom $4,000
Aug 96 Nashoba Networks $100
Jan 96 TGV Software Web applications $115
Jul 96 Telebit Modems $200
Sep 96 Granite Systems Computer networking $220
Oct 96 Netsys Technologies Network simulation $79
Mar 97 Telesend Broadband Internet access
Jun 97 Skystone Systems Synchronous optical networking $89
Jun 97 Global Internet Software Group Firewall $40
Jun 97 Ardent Communications Broadband Internet access $156
Sep 97 Integrated Network Digital subscriber line
Dec 97 LightSpeed International Voice over Internet Protocol $160
Feb 98 WheelGroup Computer security $124
Mar 98 NetSpeed Broadband Internet access $236
Mar 98 Precept Software Internet television $84
Metaplex
Computer networkingMay 98 CLASS Data Systems $50
Jul 98 Summa Four LAN switching $116
Acquisition
Date Company Business Value ($M USD)
ACQUISITIONS

6. Cisco’s Troubles Begin
2001
1 company acquisition in
2001 and showed its first
loss
• Revenue: $22.3B
• Headcount: 38,402
• Net Income: ($1B)
2000
• Revenue: $18,928M
• Headcount: 34,613
• Net Income: $2.7M
• % of Sales: .0014%

7. Cisco's Troubles Continue…
Expenses Increase over Prior Year
• $1B R&D increase
• $1.3B Marketing increase
• $0.75B Goodwill write down
One acquired company alone took a 60%
hit on what they paid for it.
• $2.25B Inventory reduction

8. Evidence of Trouble
0
10
20
30
40
50
60
70
80
90
AdjClose
CSCO Stock Performance

9. Recent years
2009
• Revenue: $36.1B
• (9%) decrease from PY
• Headcount: 65,550
• Net Income: $6.1B
• Margin: 17%
2010
• Revenue: $40B
• 11% increase from PY
• Headcount: 70,700
• Net Income: $7.8B
• Margin: 20%

10. Qtr ended January 2011
vs Prior Quarter
Revenue
• 6% Revenue increase
over PQ (primarily due
to Tandberg, a data
center acquisition)
• Product 3%
• Service 18%
• 22% increase in
emerging markets
Gross Margin
• (3.4%) GM decrease
• (4.3)% Product
• 0.1% Service
Product decrease:
• Higher sales discounts
• Lower prices
• Mix
• Intangibles amortization

11. Strategy Issues…
• Diversified beyond its Core Competency
Didn’t spend the cash on hand wisely
Acquired businesses not related to core
Distracted focus from the core business
Competitors used opportunity to take market share

12. Strategy Issues…
• Trying to sell very expensive consumer products
Brand not considered “cool”
Products were not integrated and convenient – Flip!
Linksys losing market share
Margins in consumer products are much lower

13. Strategy Issues…
• Competitors cutting into margins
Cisco spends >$5 Billion in R&D
Juniper selling superior products for less
Competitors like HP and IBM used to low margin
Cisco Switch
$4,987
HP Switch
$361

14. Strategy Issues…
• Partners became competitors
Cisco moved into Data Center business
Now competing with HP and IBM
HP acquired 3Com
Now competing in switch/route market
Customers don’t want to get locked into Cisco

15. “Does Cisco Have a John Chambers Problem?”
Slowed Growth
Shrinking Margins
“Video is the
future of our
business!”
“Our innovation
engine is on
FIRE!”
Cisco misread shift in business technology towards
consumerization; gadgetry must be pleasurable, affordable, and
easy to use –Quentin Hardy

16. What Would Michael Porter Say?
Identify interrelationships among
existing business units
Select core business that will be the
foundation of corporate strategy
Pursue diversification for transfer of
skills and sharing of activities
Create horizontal structure to facilitate
interrelationships among businesses
WWMP

17. ServicesHardware
•Stratacom (1996) $4B
(Switching)
•Arrowpoint Communications
(2000) $5.7B (Switching)
•Andiamo Systems (2002) $2.5B
(Data Storage)
•Scientific Atlanta (2005) $6.9B
(Digital Cable)
•Linksys (2003) $500M
(Computer Networking)
•Tandberg (2010) $3.3B (Video
Conferencing)
Cisco's Markets
Business Consumer

18. ServicesHardware
•Stratacom (1996) $4B
(Switching)
•Arrowpoint Communications
(2000) $5.7B (Switching)
•Andiamo Systems (2002) $2.5B
(Data Storage)
•Scientific Atlanta (2005) $6.9B
(Digital Cable)
•Linksys (2003) $500M
(Computer Networking)
•Tandberg (2010) $3.3B (Video
Conferencing)
Cisco's Markets
Business Consumer

19. ENTERPRISE DATA CENTER
MARKET (for the cloud)
Server
Switch/
Router/
Firewall
Internet
Intel (hardware)
Microsoft (OS)
Cisco (software)
Cisco (hardware)
Cisco (OS)
Customers
DataCenter

20. FIVEFORCESANALYSIS:
ENTERPRISE DATA CENTER MARKET
Bargaining Power of
Suppliers: Low
 Raw materials,
inexpensive components,
software/programmers
(Intel, Microsoft)
 High saturation of
suppliers
 Low switching costs
 Low threat of forward
integration
 Customers: Large
Businesses, CIOs,
public sector
 Very price sensitive
 Need stable support
 Significant cost to
customer
 Very sophisticated
buyers
 High switching costs
Bargaining Power of
Buyers: High
 Supply-side economies of scale
 High startup costs
 Distribution channels
 Brand reputation is important
 Product obsolescence
Threat of New
Entrants: High
Threat of
Substitutes: Low
 Substitutes: Modular
equipment/services
 Low Value/Price ratio
 Switching costs
 Closeness of substitute
 Main competitors: IBM,
Juniper, HP, AMD, Oracle,
Microsoft, Alctel-Lucent
 Number of competitors
 Mature rivals
 Difficult to read rivals
 Low concentration of power
Intensity of Rivalry Among
Competitors: High

21. Recommendations
• Divest from distracting businesses
Get out of most consumer products
Intrinsically low margins
• Product and services to leverage
business relationships
• Sales force and R&D oriented
towards business not consumers
• Sitting on tons of cash – use it to
acquire companies in business
services segment or distribute to
shareholders as dividends Business ConsumerServicesHardware





22. Recommendations
• Get More Involved in the Enterprise Data Center Market
• Several Data Center Acquisitions in the Past
Andiamo Systems (2002)
Actona Technologies (2004)
NeoPath (2007)
• Possibly Acquire EMC
Certainly Costly (Probably at least $35B)
Would Give Them Clear Market Leadership in the Industry
Cisco already in a business relationship with EMC in this market

23. Works Cited
Hardy, Quentin. "Does Cisco Systems Have a John Chambers Problem?" Forbes.com (2011). Web. 5 May 2011. <http://www.forbes.com/global/2011/0314/technology-cisco-
systems-juniper-john-chambers-challenged.html>.
McGirt, Ellen. "How Cisco's CEO John Chambers Is Turning the Tech Giant Socialist." Fast Company 1 Dec. 2008. Web. 5 May 2011.
<http://www.fastcompany.com/magazine/131/revolution-in-san-jose.html>.
Tuna, Cari. "Cisco's Clients Weigh Options." The Wall Street Journal (2011). Web. 5 May 2011.
<http://online.wsj.com/article/SB10001424052748703561604576150933560766062.html>.
"Cisco Systems." Wikipedia The Free Encyclopedia. Web. 4 April 2011. <http://en.wikipedia.org/wiki/Cisco>.
"Corporate Overview." News@Cisco. Web. 4 April 2011. <http://newsroom.cisco.com/dlls/corpinfo/corporate_overview.html>.
"Cisco Systems Corporate Timeline." News@Cisco. Web. 11 April 2011. < http://newsroom.cisco.com/dlls/corpinfo/milestones.html>.
"List of acquisitions by Cisco Systems" Wikipedia The Free Encyclopedia. Web. 4 April 2011. < http://en.wikipedia.org/wiki/List_of_acquisitions_by_Cisco_Systems>.
"CSCO Historical Stock Price". Yahoo! Finance. Web. 28 April 2011. < http://finance.yahoo.com/q/hp?s=CSCO+Historical+Prices>.
Year End September 2000 10K SEC Filing, http://investor.cisco.com/secfiling.cfm?filingID=1095811-00-3692
Year End September 2001 10K SEC Filing, http://investor.cisco.com/secfiling.cfm?filingID=1095811-01-505065
Year End September 2009 10K SEC Filing, http://investor.cisco.com/secfiling.cfm?filingID=1193125-09-190326
Year End September 2010 10K SEC Filing, http://investor.cisco.com/secfiling.cfm?filingID=1193125-10-213400
Quarter End January 2011 10Q SEC Filing, http://investor.cisco.com/secfiling.cfm?filingID=1193125-11-42813
Questions? Thank You!
from Maximum Overdrive