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Cisco results improve, but will Chambers keep CEO post?

Continued sluggish results aren't likely to unseat him, analysts say

By Stephen Lawson
May 15, 2014 06:20 AM ET

IDG News Service - John Chambers may stay chairman and CEO of Cisco Systems for the time being, but with the company's financial results just beginning to emerge from a slump and major challenges remaining, it won't be an easy time to hold onto one of the longest leadership stints in the IT industry.

   John Chambers
Cisco Systems Chairman and CEO John Chambers spoke on Tuesday at the company's annual financial analyst conference in San Jose, California.

In its latest financial report Wednesday, Cisco again reported revenue and profit below 2013 levels. The gap narrowed from the previous three months and from Cisco's own forecast, but executives said steady growth won't resume for a few quarters yet. In December, Cisco dramatically cut its long-term forecast.

There are also big changes happening in the technology landscape. Cisco is battling a growing trend toward SDN (software-defined networking), an emerging set of technologies that offer an alternative to Cisco's traditional model of selling hardware with built-in software.

At the same time, the expected proliferation of connected devices in the Internet of Things could fuel a new era of growth in networks -- and at Cisco, if the company plays it right. With a growing server business and moves into security, cloud and other areas, the company has also set its sights on a wider IT market, taking on the likes of IBM and Hewlett-Packard.

Chambers, who will turn 65 this year, has said he wants to guide the company through these transitions. But doing that, he'll face challenges far different from the ones he started with 19 years ago.

"There are very few CEOs who were in place when John took over Cisco who are still in place today," Gartner analyst Joe Skorupa said. Under Chambers' leadership, Cisco has grown from a moderately sized networking specialist to a giant with more than $40 billion in annual revenue.

The tech industry has also matured in that time, and growth is harder to come by for many established companies, Skorupa said. They need to compete with rivals from other market segments and with former or even current partners, he said.

"The market is far more challenging than it was 15 years ago," Skorupa said.

This puts Cisco almost in the same boat as Microsoft, said Lee Doyle, principal analyst at Doyle Research and a longtime Cisco watcher. It's big, profitable, cash-rich, and relatively slow moving.

"They are the networking company. The question is, where does Cisco go from there?" Doyle said. "They're a long way from being a dominant IT company."

For shareholders, the key is finding growth, he said.

Whether that means a new CEO is another matter. Chambers has laid out vague timelines for retirement in the past, but last November he told CNBC that he didn't expect to make a move for another year or two as the company works through the current challenges. Even when he quits as CEO, he's expected to stay on as chairman.

Reprinted with permission from Story copyright 2014 International Data Group. All rights reserved.
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