Cisco Gets Smaller – Begins Shift to Software and IOT

By Jim Lundy

Cisco announced its second largest round of staff cuts – over 5,500 people on August 17th, the day it announced its quarterly earnings. It also announced a $700 Million Charge against earnings. While Cisco had a solid quarter, the Sales downturn, including reduced revenues from some key telecom customers, suggests that hardware demand is slowing down as buyers increasingly look at Software architectures. All that said, enterprises that survive and thrive don’t wait for new markets to develop. This blog is about Cisco’s shift to Software and IOT.

Cisco in Transition

This workforce reduction comes at a time when its quarterly profit was $2.81 Billion, up from $2.32 Billion in the same quarter last year. The shift to Software Defined Networking (SDN) and the realization from customers that the future is about software means that Cisco is getting leaner in the short term, so they can invest in growth areas, such as Software and IOT. Chuck Robbins talked extensively about the shift from hardware to software at Cisco Live (#CLUS16) in Las Vegas in July.

The Chuck Robbins Era

The belt tightening is a further sign that CEO Chuck Robbins is firmly in charge. Chuck has been CEO at Cisco for a year and it is clear that he is focused on execution. Cisco has always been good at recognizing market transitions and Chuck has publicly discussed his desire to focus Cisco on Subscriptions and Software.  He showed Cisco’s vision for a Software based future during his speech (see Figure 1) at Cisco Live 2016.

Shifting to IOT and Software

Cisco has been on an acquisition binge – it completed the acquisition of IOT software provider Jasper earlier this year. In fact, Aragon believes that part of the reason for the Cisco reduction in force is the need to invest in new areas, such as IOT, which is increasingly being driven by software.

As evidence of that, Cisco SVP Rowan Trollope’s title has shifted to SVP of IOT and Applications (watch Rowan’s IOT Keynote). This doesn’t mean that Collaboration at Cisco is less important, as this year Apple and Cisco are now working closer together on Collaboration applications. To us it shows the growing recognition by Cisco that they have a larger market opportunity and need to prepare for that.

The Race to Digital

So the bottom line is that Cisco is changing and is preparing for a Software based future. It is getting smaller in the short term, as it prepares for the new battle to own Digital.

 

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