Cisco Systems Inc’s customers are asking chief executive officer John Chambers to step up the company’s push into software-driven networking, instead of just trying to sell more hardware.
Goldman Sachs Group Inc, Verizon Communications Inc and Coca-Cola Enterprises Inc are telling the world’s largest networking-gear maker that they will not keep paying for expensive equipment when software can squeeze out more performance and make the machines more versatile.
“What we spent on your gear last year is not what we’re going to spend on your gear this year, unless you do something really different,” Martin Chavez, chief information officer at Goldman Sachs, told Chambers earlier this year.
What Chambers is hearing from clients illustrates the pressure Cisco is facing as the company was to report fiscal-fourth quarter earnings yesterday, with revenue projected to shrink 3 percent this fiscal year, the first decline since 2009.
As Chambers nears retirement after almost two decades as CEO, at stake is whether Cisco can keep dominating the US$54.1 billion industry for switches, routers and other equipment that shuttle data and Internet traffic around the globe.
Analysts are projecting Cisco’s fiscal fourth-quarter sales to decline 2 percent to US$12.2 billion, according to the average of estimates compiled by Bloomberg. They are predicting a profit, excluding some charges, of US$0.53 for the period that ended last month, down from US$0.52 a year earlier.
Chavez and other customers are pushing San Jose, California-based Cisco to fully embrace software-defined networking, the biggest shift in the industry since Cisco took pole position in the early 1990s.
Rather than buying hundreds or thousands of expensive and proprietary machines to handle specific jobs, Goldman and others are deploying software that lets them run cheaper networking equipment more efficiently.
Verizon demanded a software-only version of some of Cisco’s video-streaming technologies in 2012, Verizon vice president of product development Mike Palmer said in an interview with Bloomberg.
Cisco complied, he said.
“For the past 18 months, we’ve received applications that were formerly delivered as hardware that are now delivered as software,” Palmer said.
Chambers also accommodated Coca-Cola Enterprises when the bottler wanted to outsource the operation of its internal telephone and video conferencing systems. Instead of buying equipment, the company wanted Cisco to run its gear on the bottler’s behalf and charge a monthly fee to deliver the service. Cisco resisted at first, until CIO Esat Sezer threatened to find a supplier that would comply.
“By the end of this year, there won’t be any more Cisco boxes in our offices,” said Sezer, who in previous years had purchased hundreds of products from Cisco for these jobs.
“We are delivering more flexible options for buying from Cisco,” Cisco spokesman David McCulloch said on Tuesday. “We have a global sales organization and we’re very focused on business outcomes for our top-tier customers. That requires some flexibility in the way we work with them.”
While the shift to software-defined networking will take many years, Chambers has shown in the past that he is willing to adapt. The only question is whether the CEO has enough time, given that he is retiring within a few years.
“There is so much interest in these trends, that Chambers cannot be blindsided by his customers,” Sezer said.
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