Chambers: Cisco will be more of a software and services company

The company's not just about boxes anymore, CEO tells financial analysts.

JOhn Chambers

Cisco, the quintessential IT hardware maker, wants you to start thinking about it as software and services company.

CEO John Chambers told analysts in New York today that the switch/router manufacturer that is also heavily invested in video and server gear that the company plans to double its revenues from software over the next five years from $6 billion to $12 billion, according to a Reuters report.

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Even so, the software will become just 25% of the company's revenues, which Chambers says will grow steadily at 5% to 7% per year long-term.

“Cisco tries to position itself as a software company all the time,” says Zeus Kerravala. “They’ve been doing that for years now.”

Software in conjunction with custom application-specific integrated circuits does result in long-term benefits vs commodity chips with software, and that is a good argument, he says.

Perhaps more important, though, is Chambers’s emphasis on expanding services, particularly consulting on the new technologies in order to assure that early adopters succeed in their deployments, Kerravala says. That is also the most profitable type of consulting, he says, enabling 67% profit margins for consulting. “They focus on things that are hard,” Kerravala says.

According to Chambers, the majority of engineering done at Cisco is already software engineering, producing results that are bundled with hardware, according to slides accompanying his remarks to financial analysts.

The majority of engineering done at Cisco is already software engineering, producing results that are bundled with hardware, according to slides accompanying his remarks to financial analysts.

Other software offerings are wrapped up with custom chips and services that result in intelligent IP networks, the slides say. The game plan calls for expanding software across the Cisco portfolio of switching, routing, cloud, data center, mobility, video, services and security, they say.

This includes its IOS software, its software defined network initiative, its Nexus OS, Star OS, WebEx, Call Manager, IronPort and ScanSafe platforms, according to the presentation.

Chambers says the company will move from its software defined network toward an application-centric intelligent network that can harvest data from networks, analyze it and create policies based on that analysis in order to improve network security and application performance.

That doesn't mean Cisco is abandoning its hardware past, just that software and the intelligence it brings to networks will play a stronger role.

That's necessary to bring about a change in how the company defines IT, from the study, design, development, application, implementation support or management of computer-based information systems to the same definition to something else by substituting the word "network" for "computer".

This new model of IT is based on two major parts: applications and a unified infrastructure, according to slides accompanying his presentation. Applications will include those developed by third parties as well as traditional business processes and enterprise applications, applications for vertical markets and Cisco video and collaboration platforms.

The unified Cisco infrastructure the applications will ride on includes unified data centers, core networking, access networks and security.

In his presentation Chambers addressed the company's future under the banner "Why We Will Win."

The reasons:

- Cisco is at the center of a world moving to IP

- A transition is ongoing toward network-based IT

- The combination of Cisco ASICs, hardware, software and services yield required intelligent IP networks

- Cisco unifies networking, computing and storage

- Cisco's culture, track record, size, installed base, financial stability and innovation are all strengths.

(Tim Greene covers Microsoft for Network World and writes the Mostly Microsoft blog. Reach him at tgreene@nww.com and follow him on Twitter https://twitter.com/#!/Tim_Greene.)

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