Cisco's new stance met with guarded approval

Analysts like new, trimmed-down feistiness but worry about profits

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The new, leaner, more aggressive Cisco met with analysts this week to discuss where it's been, where it's going and how it will get there. After its 12,000 employee downsizing, re-engagement with switching and routing, disengagement from Flip and consumer, and newly acquired feistiness what is the verdict from analysts?

Encouraged, yet cautious. They are enthused with Cisco's leaner build and renewed outlook - 5% to 7% annual growth vs. earlier targets of 12% to 17%. But they are worried that the aggressive stance against HP, Juniper, Huawei and Avaya may lead to deep discounting, which will eat any bottom line gain from the downsizing - and then some.

CEO John Chambers talked tough at the analyst day but seemed more worried about Huawei than HP and/or Juniper, according to this post from MarketWatch. He said Juniper is the most vulnerable he's seen and that Cisco "could leave them (and HP) behind."

But he also pledged to take Huawei on in its motherland of China, which will kill profits... in switching. According to Oppenheimer & Co. analyst Ittai Kidron, Cisco plans to make it up in services and software:

The company is pushing for growth in higher margin business such as services, collaboration and software, and is looking to improve switching margins through ASIC investment, value engineering and supply chain efficiencies.

Services and collaboration are growing at a compounded annual rate of 13% to 15% while switching and data center are growing at 2% to 4%, notes Nikos Theodosopoulos of UBS. Product refreshment cycles are complete though, which may give switching a boost, he says.

Overall, UBS seems bullish on Cisco after the analyst confab:

Cisco's competitive position looks strong. It views Juniper as most vulnerable near-term, indicating Juniper is spread too thin across Service Provider and Enterprise markets. Cisco also highlighted winning ~84% of SP router deals in 4Q. Cisco looks to continue to execute in the Blade Server market with UCS. It also sees itself as a stronger collaboration given its video portfolio.

And its aggressive stance may mean attractive pricing from all major vendors.

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Cisco's 'Jawbreaker' seen as response to competitive pressure

Cisco grapples with transition as switches and routers lag

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