Cisco Systems (s CSCO) today announced that its earnings for the quarter ended July 25 slumped 46 percent, to $1.1 billion from $2.01 billion a year ago. Revenue dropped to $8.5 billion from $10.4 billion. But Cisco CEO John Chambers said that things are looking up, and promised to return the company to double-digit growth.
The worst part, however, has been a decline in the company’s core business: switches. The Wall Street Journal reports that sales for Internet switches declined 11 percent to $12 billion its its fiscal year — primarily due to competition from rivals such as Hewlett-Packard (s HPQ). Check out this little tidbit from this great Journal story on Cisco:
In addition to the recession, Cisco faced increased competition from rival Hewlett-Packard Co. The company’s new management structure has at times slowed its response to rivals’ moves, according to people familiar with the matter. In late 2007, for instance, H-P started promoting a warranty for its switches that provides free upgrades and support. Under Cisco’s new structure, a decision about how to respond to H-P’s offering was delayed as it worked its way through multiple committees, these people said. Cisco didn’t match H-P’s promotion until this April, and during that period Cisco’s market share fell.
HP is not going to roll over– it is one of the few companies to have the resources and a similar comm-puting (communications-based computing) view of the IT landscape as Cisco. (Related: How HP Can Fight Cisco and Win.) With further competition from lower-cost competitors such as Dell and some low-cost Asian manufacturers, Cisco is running the risk of seeing its market share erode further. But then you can’t own the market forever.
Om – It appears Cisco has not lost marketshare in switched standing at 76% this quarter even though the switches space seems to have shrunk (Goldman sachs report confirms this number). Matter of fact GS says that Cisco managed to improve marketshare in various segments this quarter. Cisco faced a hit in the switches space when it clocked around 65% marketshare in Jan but has now adjusted and grown enough to hold on its traditional 75+% marketshare in switches. I think HP & IBM competition seems to be overhyped – Cisco continues to lead in most of the core segments very well.
Om – It appears Cisco has not lost marketshare in switches. Currently its share stands at 76% this quarter even though the switches space seems to have shrunk (Goldman sachs report confirms this number). Matter of fact GS says that Cisco managed to improve marketshare in various segments this quarter. Cisco faced a hit in the switches space when it clocked around 65% marketshare in Jan but has now adjusted and grown enough to hold on its traditional 75+% marketshare in switches. I think HP & IBM competition seems to be overhyped – Cisco continues to lead in most of the core segments very well.
I’ll just add that most CIO/CTOs are still holding back on spending now. When that changes I think you’ll see continued strong performance from CISCO
@techdom
We are in an interesting time- network company wants to do sell computers and computer companies wants to sell network devices.
This is basically because of increase in processor speed/multi-core + lowering memory cost + high throughput IO. I can take a hardware and run a J2EE App Server OR a router software today. No need for any specialized ASIC/FPGA for an ordinary router inside the firewall. (I don’t say the same thing for service providers like ISP)
Who is going to win the race? The server companies has an edge because they have software stack. They can provide the complete infrastructure to enterprises and thereby pushing Cisco only to the service provider market.
To answer your question, Cisco may not be loosing market to it’s competitors like Juniper but it’s may be loosing to it’s old FRIENDS like HP, IBM, etc. (+ to new friends like Huawei with 87,502 people, 43% in R&D )
Is Cisco is the new Sun in 2015? I don’t think so but a tech support guy in bestbuy talks about how expensive it’s hardware for no reason 🙁
Cisco enjoy a 65% margin on pretty much they share. In terms of business value its hard for them to show where they are any better from anyone else. Yes they had their own proprietary protocols that offered value a number of years ago (power over ethernet, CDP) but industry standards 802.3af and LLDP-MED offer similar functionality.
Its really down to TAC support and buy it all from one place.
Cisco, you need to learn to shape the future direction of the industry again. If you continue to compete within this industry as it stands today those margins will errode and competitors will be nipping at your toes!
Cisco have acquired 133 companies and have over 400 VPs in the silo BUs. Isn’t it time for a restructure?
Something that always bothers me when people talk about Ciscos Market Share, and use numbers like 76% of Market… Thats REVENUE. Yes, shareholders love revenue.
Port Count is a different Story. One leading Analyst said that for Q109 on “all ports with the exception of Unmanaged, but includes all Web Managed ports” Cisco had 70% of the Revenue, but only 49% of the ports shipped
Thats a big difference. It means that buying from someone else gives you bang for your buck…
Why don’t we use this number??
The committees do not delay decision making. Competitor response to HP was only delayed because of the handover from Rick Justice to Rob Lloyd. Moment Rob came on board the very next day he responded to HP.
The threat to Cisco from HP will steadily grow but so will Cisco’s threat to HP in the DC space. I think switching will further come under threat from Juniper’s EX series. In a recent UBS survey of 100 CIO’s the 11% said they would try it while its current share is closer to 1%. Avaya’s takeover of Nortel’s switching will also start making headway in six months or so. Avaya is also manned by once heir apparent to John Chambers Charlie who knows how to play the game.
But I think Cisco is in good hands. It knows it’s not about switching – It will fight a holding game (Think World War 1 trench warfare) while it tries to change the rules by entering different markets in different ways. And I know for sure Cisco is not revealing everything about its strategy yet. Not when it sits on that mountain of cash.
If I was HP I would not worry about gaining switching market share, or Cisco entering into the server space. I would worry about a company that has a deep enough bench of talent to try to change the game. What if Cisco succeeds?
Yeah yeah full disclosure. I work for Cisco. But I do respect HP under Hurd a lot.