The Architect: Q&A with John Chambers

“In people’s minds that might have been a stretch three to five years ago, but when I talk to the top 5 percent of CEOs in the world, they not only get it, but when you sit and listen to them, you can’t tell what’s IT and what is their business,” Chambers says. “It’s starting to occur and plays extremely well for Cisco and our partners.”

The architecture strategy is part of what takes Cisco beyond its legacy as a network plumber and pushes it into the upper echelons of tier-one IT vendors: a long-haul competitor to the Hewlett-Packards and IBMs of the world.

It’s also driving Cisco’s ambition to be the ruling technology power in 30 or more “adjacencies” – Chambers’ preferred term for market and product segments such as health care, smart grid and video, where he believes Cisco can be the No. 1 player, and where challenges are solved in the network. “Have we spread ourselves a little bit thin? I’ve always spread us thin at Cisco,” Chambers says. “The key is market transitions wait for no one. This verticalisation, whether it’s good or bad, is happening.

And unlike our peers that we’re competing against, we share the majority of our direction with our partners, including even the services level where I would expect our partners to generate five, 10 times the services revenue we do, even though we’re all needing to move to a services-led sell and services-led implementation.”

The financial picture

Cisco sceptics say the company’s expansion hasn’t solved the increasingly competitive pressure on its core businesses. In its most recent earnings announcement, for the second quarter of its fiscal 2011, Cisco’s profit declined 18 percent year over year, switching revenue was down 7 percent year-over- year (11 percent sequentially), and routing was up 4 percent (down 7 percent sequentially) – less-than- encouraging numbers for product categories that together still make up about 46 percent of Cisco’s overall revenue.

On the second-quarter earnings call, which took place after CRN’s interview, Chambers says Cisco was going through “a period of transition” that was faster than Cisco anticipated, and that newer and future Cisco products will compete far better at the level of price performance.