Before this evening's earnings announcement from Cisco, the Wall Street Journal published a tough article about Cisco's recent performance. The WSJ article requires a login, but to summarize:
- Cisco is having problems in some parts of its business (what John Chambers calls "air pockets").
- In the past, Cisco would ramp up performance in other BUs to make up for problems in some. But, now that Cisco has gotten big bureaucracy is limiting its ability to be nimble and fix the air pockets.
- Competition (Juniper, Riverbed, HP, IBM, etc, etc) is ramping up so Cisco is cutting prices to hold market share. This lowers their gross margin which trickles down to lower net profit levels.
- Thus, the stock prices get hit.
The stock charts tell the story. If we consider the last year, CSCO has lost 7.74%: That's bad. But, by itself, you might accept that knowing Cisco is a good company and will probably turn it around. However, the real pain is seen when CSCO is compared to Cisco competitors (or where you could've invested your money). Consider Juniper (JNPR), Cisco's biggest routing and switching competitor, compared to CSCO: Ouch! That's a 68.28% difference. Or how about Cisco's main WAN Acceleration competitor (and soon to be bigger competitor) Riverbed (RVBD): Yeah...well..... But, a strong argument can be made that these two companies are not like Cisco. They are smaller and more focused on a limited product line and market. Cisco, with its many product lines (particularly the addition of UCS) is more like HP and IBM now, which I would tend to agree with. That's still hideously unacceptable. Cisco is too good and too proud of a company to argue, "well, we're only 10% worse than HP". Something needs to change. I like Cisco and want them to be successful. They make good product, have good people, and make my company and my job better (and my mutual funds better too). But ultimately, Cisco's stockholders own the company and will demand changes, regardless of the people or products. I hope they can fix this.
The afterhours trading is not looking good:
More >From the Field blog entries:
Do You Get the Feeling That It Won't Be Enough WAN Bandwidth?
FIB Suppression and Virtual Aggregation to Help the Internet Scale
Cisco Is Getting a Bad Rap on the Corporate Tax Issue
I've Graduated and Now I'm Back (to Blogging More)
Giving Cisco Telepresence its Own QoS Queue is Some Expensive Real Estate
Our WAN Transformation Engineering Conference is Great
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