Monday, March 31, 2008
Cisco Systems - Leaner, Greener & Meaner
There's big changes underway at Cisco Systems (CSCO), as the San Jose, CA based internet networking gear maker gets ready to face a changed global business environment, with an increasing focus on green technology, a globalised workforce and the direct impact of the credit crisis on U.S. businesses.
Scott Moritz, Fortune Magazine, writes that Cisco is cutting costs in preparation of expected earnings losses due to a broader slowdown. The San Jose maker of Internet networking gear has told some managers to limit travel expenses and use up accumulated vacation days, according to sources close to the company. After cutting sales growth targets to 10% from 15% last month and warning that January orders were "challenging," CEO John Chambers has been circumspect in his business outlook of late. In a presentation to investors March 4, Chambers said the current quarter ending in April has "evolved, unfortunately, very much as we anticipated" and that the current slowdown could last from two to five quarters.
Secondly, Heather Clancy, ZDNet, writes about how Cisco is 'coalescing its various green strategies'. Using conferencing and video technology [Cisco Telepresence] as an alternative to globe-trotting is a major push for Cisco, not just internally but as a go-to-market rallying cry. But where Marcoux [Paul Marcoux, vice president of green engineering at Cisco] is likely to make his mark more meaningfully is in the reengineering of Cisco’s products. His principal focus, at least initially, will be on bringing more intelligence to the power supplies that Cisco gear uses, so that power management is an inherent feature and not an afterthought. So, in addition to its own research, the company is studying low power design techniques and looking to peers in places like IBM, Hewlett-Packard Labs and Lawrence Berkeley National Laboratory to share architectural ideas.
Lastly, G. Pascal Zachary, New York Times, writes about Cisco (and others) who are relying more and more on 'open innovation', as in technology alliances with rivals and technology acquisition from companies across the world in order to stay competitive, even as Cisco's U.S. workforce is shrinking. Cisco has 50 executives scouring the globe for technology acquisitions. They work closely with leaders of internal product teams. Just as the general manager of a baseball team might fill a gap in his lineup by acquiring a new center fielder or relief pitcher, Cisco’s business managers can ask for specific technology help from outside the company. In 2005, in response to such a plea, Cisco bought a California start-up, Nemo Systems, for $12 million. Nemo had designed a novel way of using standard memory chips to store data in Cisco’s routers, which needed more costly specialized memory. Routers are a key piece of computer networks and a major source of Cisco’s revenue. Cisco spent nearly three years refining Nemo’s approach; the memory technique will begin showing up in Cisco routers this year.
So what does all this mean? It means that instead of crying about 'market conditions', Cisco is actively planning and adapting flexible strategies to keep their earnings intact (including cost cuts), while not giving up the basic reason for their success - Intensive research and adopting new technologies ahead of time - Even if said research is done by others, and Cisco merely purchases it.
To put it another way, Cisco Systems may show reduced earnings during this year, as will most others, but the difference is that Cisco will be ready and primed to supply the market with what it wants, when the dust settles on the funk which the economy finds itself in now. I'd say that should be reason enough to bet long on CSCO, if you're looking at value.
Scott Moritz, Fortune Magazine, writes that Cisco is cutting costs in preparation of expected earnings losses due to a broader slowdown. The San Jose maker of Internet networking gear has told some managers to limit travel expenses and use up accumulated vacation days, according to sources close to the company. After cutting sales growth targets to 10% from 15% last month and warning that January orders were "challenging," CEO John Chambers has been circumspect in his business outlook of late. In a presentation to investors March 4, Chambers said the current quarter ending in April has "evolved, unfortunately, very much as we anticipated" and that the current slowdown could last from two to five quarters.
Secondly, Heather Clancy, ZDNet, writes about how Cisco is 'coalescing its various green strategies'. Using conferencing and video technology [Cisco Telepresence] as an alternative to globe-trotting is a major push for Cisco, not just internally but as a go-to-market rallying cry. But where Marcoux [Paul Marcoux, vice president of green engineering at Cisco] is likely to make his mark more meaningfully is in the reengineering of Cisco’s products. His principal focus, at least initially, will be on bringing more intelligence to the power supplies that Cisco gear uses, so that power management is an inherent feature and not an afterthought. So, in addition to its own research, the company is studying low power design techniques and looking to peers in places like IBM, Hewlett-Packard Labs and Lawrence Berkeley National Laboratory to share architectural ideas.Lastly, G. Pascal Zachary, New York Times, writes about Cisco (and others) who are relying more and more on 'open innovation', as in technology alliances with rivals and technology acquisition from companies across the world in order to stay competitive, even as Cisco's U.S. workforce is shrinking. Cisco has 50 executives scouring the globe for technology acquisitions. They work closely with leaders of internal product teams. Just as the general manager of a baseball team might fill a gap in his lineup by acquiring a new center fielder or relief pitcher, Cisco’s business managers can ask for specific technology help from outside the company. In 2005, in response to such a plea, Cisco bought a California start-up, Nemo Systems, for $12 million. Nemo had designed a novel way of using standard memory chips to store data in Cisco’s routers, which needed more costly specialized memory. Routers are a key piece of computer networks and a major source of Cisco’s revenue. Cisco spent nearly three years refining Nemo’s approach; the memory technique will begin showing up in Cisco routers this year.
So what does all this mean? It means that instead of crying about 'market conditions', Cisco is actively planning and adapting flexible strategies to keep their earnings intact (including cost cuts), while not giving up the basic reason for their success - Intensive research and adopting new technologies ahead of time - Even if said research is done by others, and Cisco merely purchases it.
To put it another way, Cisco Systems may show reduced earnings during this year, as will most others, but the difference is that Cisco will be ready and primed to supply the market with what it wants, when the dust settles on the funk which the economy finds itself in now. I'd say that should be reason enough to bet long on CSCO, if you're looking at value.
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