Cisco Systems Inc chief executive officer John Chambers, outlining deal-making plans for the coming year, said he remains in the market for small and midsize software makers and that he is not getting investor pressure to break up the company.
With the stock of San Jose, California-based Cisco near a seven-year high, “no one in their right mind would want to break up Cisco,” Chambers said in an interview on Thursday, adding that he has never spoken with an activist investor.
“CEOs should be their own activist,” he said in a separate interview on Friday on Bloomberg TV.
Cisco has avoided shareholder complaints by responding to their requests for higher dividends and stock buybacks, as well as by making changes to its business.
“I think we have shown an unbelievable ability to reinvent ourselves,” Chambers said in the TV interview.
Cisco will be an aggressive buyer of software companies over time, Chambers said on Thursday, particularly in areas such as cloud services and security. Still, he said valuations are too high for many potential targets.
“Our shareholders are comfortable with us being more aggressive” in making acquisitions, given Cisco’s recent record of holding down expenses, yet buying at high prices would “not be a good decision for us or for our shareholders,” he said.
To rev up growth, Chambers, who is planning to retire by the end of fiscal 2016, is rolling out machines that can handle skyrocketing Internet traffic, its own software-based networking tools and security services, while relying less on sales of specialized routers and switches.
Chambers has ruled out selling less profitable units to lift shareholder returns, including the company’s server business and set-top-box division. He said the server business is strategically important for customers that want to rely on Cisco for data center infrastructure.
“Am I in love with set-top boxes? Of course not,” Chambers said. He added that he has not considered selling the business, however. Large carriers such as AT&T Inc and Comcast Corp still require such equipment as they move to cloud-based approaches, so consumers can get to their favorite shows from any device, he said. Cisco benefits by offering set-top boxes, cloud infrastructure and video-management software, Chambers said.
“When you add that together, customers will pay a major premium,” he said.
Set-top boxes and servers have crimped Cisco’s overall margins, yet Chambers said Cisco has the best margins in every industry in which it competes. He singled out Cisco’s performance in Internet switches, its largest business. He also cited Cisco’s response to software-defined networking, which enables companies to run networking software on cheap commodity servers.
Other networking equipment companies would not be able to compete with Cisco, given its ability to combine its switches with its servers, software and services, he said.
Cisco’s stock still has room to rise, he said. The shares rose 1 percent to US$29.61 on Friday.
Cisco’s stock has climbed 6.5 percent this year, compared with a 2.5 percent gain in the S&P 500 Index.
“You could argue that we’re at the start of a five-to-10-year run,” Chambers said.
For those concerned that Cisco will struggle to find new growth and find it difficult to maintain margins, he said, “I’d be careful about being a pessimist.”
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