Cisco Stories Roundup March 2013

It seems as if it’s getting harder and harder for Cisco to disassociate themselves with any sort of negativity. The last few weeks have been heavy for the manufacturer. From dealing with the state of West Virginia, to their facing a 70M fine via civil fraud damages, and reported company layoffs, Cisco has really been put through the ringer. Even with their planned acquiring of SolveDirect, the manufacturer cannot not seem to clean up their stained reputation. That being said, it seems industry analysts have already started to count the manufacturer out. With all the PR over the last few weeks, it seems plausible that analysts have factored recent activities to their assessment of Cisco’s viability. Though analysts do not claim any correlations, one cannot help but take notice.

In an attempt to regroup, Cisco has reportedly reduced their workforce by 500. This restructuring comes in response to the looming tangibility of software-defined networking (SDN), cloud computing, and its impact on routing and switching. Though a Cisco spokesperson told Network World the downsizing was standard procedure, things are looking a little grim for Cisco. Last week saw Cisco shell out $70M to patent licensing firm, Xpertuniverse. After a failed partnership with the firm, a Delaware court found Cisco guilty of “fraudulent concealment,” which led to the “destruction of the company” (Xpertuniverse). Additionally, Cisco was charged with infringing on two patent related to contacting experts online for Q&A sessions.

Though these two stories are seemingly unrelated, Cisco’s restructure may in part be due to their misfortunes as of late. In the wake of their recent size reduction, FBR Capital downgraded both Cisco and Juniper stock to “underperform,” and even went so far as to predict a 40% drop off in “the number of switching and routing ports in service provider networks over the next 18 to 36 months.” Additionally, FBR analyst Scott Thompson stated, “Looking ahead, we see the potential for additional negative technological trends that could significantly blur the lines between routers, switched AND servers.” While this drop off would be industry wide, Thompson went so far to inject his insight on what FBR expects from Cisco. “As a result, we expect: (1) a low, but meaningful, reduction in the number of router and switches deployed into networks; (2) the adoption of an increasingly larger mix of white box, lower-margin product; (3) the announcement of new competitive products and vendors that could negatively affect gross margins at both companies and across the space.” That being said, it doesn’t seem as there’s much faith left in Cisco; however, is this solely because of a staff reduction due to emerging industry change?

FBR Capital’s assessment of Cisco comes at the tail end of a string of negative events for Cisco. With that in mind, it seems plausible that these trend predictions could have been influenced by the provider’s dealings over the last few weeks. Though Thompsons’s report was intended to address the Cisco downgrade, his notes are poignant considering the recent trouble Cisco has dealt with—i.e. patent issues and lawsuits as well as employee scaling due to industry forecasting. Cisco has captured a lot of attention lately; however, it’s predominantly negative. Cisco’s layoff is but the most recent hardship publicized; therefore, this may be the metaphorical straw that broke that camel’s back. Sure, Cisco faces a lot of hardships moving forward; however, the provider isn’t wholly unprepared. Late last year, Cisco CEO, John Chambers, detailed a plan to double revenues ($6 billion to $12 billion) over the next five years. The key to this plan being big investments in both server and video gear.

Now, Cisco has announced (via blog post) their plan to fully acquire Austrian-based cloud software and services provider, SolveDirect. “SolveDirect’s cloud solutions automate the sharing of information and processes for multiple service providers, enhancing efficiencies and reducing the need for manual practices,” stated Hilton Romanski, VP and Head of Corporate Business Development at Cisco. Additionally, Romanski went on to state that acquisitions (and investments) are a key part of Cisco’s building strategy, and with SolveDirect the company can extend their “portfolio of smart and connected IT services” to their “global ecosystem of customers, partners, and resellers.” Though the specificities of the deal have yet to be disclosed, regulatory approval is likely to close in the fourth quarter of Cisco’s fiscal year.

With this latest release Cisco seems off and running on the plan outlines by Chambers. Additionally, Cisco seems to have taken industry analysts’ assessments into account. The manufacturer previously cited their restructuring as being in response to Cloud Computing, amongst other variables/factors. That being said, the provider looks to be remedying the problem. This acquisition was outlines in Chambers’s plan last year; therefore, it should be noted that provider is determined to turn their situation around.

Though Cisco is directly addressing their problem, it may already be too late. As detailed above, FBR Capital has already displayed their lack of faith in the provider. While one analyst firm’s opinion may not be irrevocably damaging, their statements come at the end of a string of incidents. With a number of unfavorable events and a receding vote of confidence from industry professionals, it may be hard for the public to support the manufacturer. While the predictions are not associated with the troubles Cisco has been dealing with lately (West Virginia, XpertUniverse) they seem reflective at least. Sure, Cisco’s layoff and FBR’s analysis go hand in hand, but other factors should not be discounted. Cisco has been under a lot of scrutiny, and with two recent lawsuits things do not particularly bode well. Yet despite these predictions and misfortunes, the provider looks determined to carry on. In doing so, they look to stick to Chambers’s plan via addressing a primary concern (cloud computing) with their acquiring of SolveDirect; however, only time will tell what’s in store for Cisco.

Cisco Roundup: $70M to XpertUniverse, Employee Layoff, and SolveDirect