Planning His Legacy, Cisco Chief Maps an Expansion - NYTimes.com

SAN JOSE, Calif. ? John T. Chambers has readied his last great act as the leader of Cisco Systems, fearing major changes in the technology business that could doom his company.

In an interview at Cisco headquarters this week, Mr. Chambers said that a worldwide revolution in mobile devices and sensors, connected to huge Internet computer systems, was roiling technology giants like Microsoft, I.B.M., Hewlett-Packard, SAP, Oracle and Cisco.

?Two or three of those will not be in that list five years from now,? said Mr. Chambers, who at 63 plans to retire in the next two to four years. ?Transitions are happening at a faster pace than ever before.?

On Friday, Mr. Chambers will announce plans to take Cisco from simply making the boxes through which most of the Internet?s traffic zips, to being a company that designs and sells software and services for a world of pervasive information technology.

Cisco, the chairman and chief executive says, will shift toward customers in government and large businesses, handling projects like designing and managing systems for efficient traffic and clean water across entire cities. Cisco?s plan is to create networks of sensors and data analysis systems, working closely with government officials and civil engineering companies. And it will work with companies to set up efficient mining, manufacturing and distribution systems.

?It?s a $4 trillion market,? he said. ?The days of boxes are over.?

For many years Cisco was one of the fastest-growing technology companies, and it is still the largest player in the networking business. But its growth has shrunk because of the global economic slowdown and new types of competition.

Mr. Chambers, who says his latest strategy will be a legacy for the next generation of Cisco leadership, has tried to fix this in part by acquiring companies that rely on high-profit-margin software and moving into growth areas like video.

Mr. Chambers has been reorganizing Cisco, consolidating a number of divisions and buying companies to prepare for his new strategy. Parts of the plan, however, seem to have large gaps, in particular how Cisco will move from a focus on technical engineering to producing social and economic results. ?We?ve got some of the horses,? he said. ?We need a lot more.?

The new focus, which will be echoed in a marketing campaign that starts Monday called ?Tomorrow starts here,? was introduced at a meeting of Cisco?s top 200 salesmen last weekend in Hawaii. Mr. Chambers and his top lieutenants worked on some of the organizational rules on his plane home, and broke the news to Cisco employees on Tuesday.

The underlying pressures behind the change, however, have been building for years. The boom in smartphones and tablets has increased the range of devices that a computer network has to manage, along with the amount and diversity of data, from two-way video to sensor data and social network updates. These devices are connected to supercomputing clouds, which collect and process enormous amounts of information at low cost.

The trend threatens large incumbent tech companies that grew up in a more predictable world. Oracle, once mainly a purveyor of databases, has moved into computer servers in response. Microsoft has invested heavily in building out its own cloud. Hewlett-Packard?s ill-starred purchase of Autonomy for $11 billion in 2010, which resulted in a $8.8 billion write-down, was an effort to become a big player in data analysis.

I.B.M., which emerged from an earlier near-death experience with the help of a services strategy similar to that of Mr. Chambers, has spent $16 billion on analytics companies in the last five years.

For Cisco, which by some measures is in 80 percent of Internet systems, the threat is from start-ups using a technology called software-defined networking, or S.D.N. This makes it possible to instantly reconfigure millions of computer servers and data storage systems to handle different types of applications, so that a fast currency trading system can instantaneously be turned into a machine that serves thousands of videos.

A move into services could ease some of that pressure, because the start-ups do not have Cisco?s corporate connections nor its deep range of products. What the firms do have, in abundance, is former Cisco talent.

Some of the biggest names backing and creating S.D.N. companies like Arista Networks, Big Switch Networks and Nicira are former senior executives at Cisco. In July, Nicira, which had almost no revenue, was acquired for $1.26 billion by VMware, a cloud computing giant that was a close collaborator of Cisco.

Mr. Chambers was dismissive of the shifting alliances. ?We don?t go into a market without a chance of a 40 percent share, and sustainable differentiation,? he said. ?We wouldn?t get into wiring oil rigs if we didn?t believe we could get 40 percent.?

Mr. Chambers also said that Cisco?s newest Internet switches were much faster than Arista?s products, and that an internally financed S.D.N. project would beat back the competition.

Not surprisingly, the competition does not agree. ?He?s picking a point in time to say he?s faster,? said Jayshree Ullal, the chief executive of Arista. ?We?ve diversified to be about programmable networks, and he?s still thinking about basic speeds.?

Mr. Chambers has in the past studied the personal biographies and decision-making habits of his competitors. Without prompting, he provided personal details about the life and choices of Ren Zhengfei, the founder and chief executive of Huawei, another Cisco competitor, and said he could do the same for many other competitors. ?I?ve worked with Jayshree for years,? he said, ?I can tell you what her next two moves will be.?

Source: http://bits.blogs.nytimes.com/2012/12/06/planning-his-legacy-cisco-chief-maps-an-expansion/

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