Wiil Cisco Spread Itself Too Thin?

Public companies, such as Cisco Systems, must grow. If they don’t grow, investors will punish them by taking their money elsewhere in pursuit of better returns on investment. Without the lifeblood of investment, companies cannot grow, and their options become constrained.

It’s a law of public-market inertia. Woe betides those who don’t provide investors with steady growth.

At an elemental level, that’s why Cisco Systems has chosen to tackle HP and IBM in the data center, why it is trying to expand its data-center presence from networking gear into servers and storage, made available to customers in one convenient package.

Actually, I understand the motivation, and can I even see how Cisco, despite the considerable risks involved, could do more than well enough to justify the effort.

Something else is bothering me, though.

While reading a post-earnings news article from Bloomberg, this excerpt quoting Yahoo CEO Carol Bartz struck me:

Cisco is going after markets that are all linked to networking and sharing information, said Carol Bartz, CEO of Yahoo! Inc. and lead director at Cisco since 2005.

“John has a really clear vision, and he organizes the company around the vision,” Bartz said in an interview this week. “He inspires the naysayers.”

My question is, what won’t be networked? Practically everything in the future will have an IP address. I exaggerate here, but not by much.

This raises questions as to whether Cisco will experience imperial overstretch. Can the company really expand into every market that is “linked to networking and sharing information”? That would mean competing and winning — because, let’s face it, Cisco isn’t content to merely have a presence in a space — in a large number of markets, some having little (except the common denominator of connectivity) to do with others.

Buyers in each of these markets will behave differently from those in others, too.

In the same Bloomberg story, Arista Networks CEO Jayshree Ullal, who reported to Chambers at Cisco for many years, makes the following point Cisco’s push for data-center hegemony:

One challenge for Cisco will be persuading clients to buy one product that comprises storage, networking and servers. Customers typically have different managers responsible for making those purchasing decisions, said Jayshree Ullal, CEO of startup Arista Networks Inc., who worked at Cisco for 15 years and reported to Chambers. The global recession also may complicate Chambers’s plans, she said.

“Everyone retrenches in a bad economy, so his timing might be off,” Ullal said in an interview from Menlo Park, California. “This is by far his most difficult endeavor.”

Perhaps so, but all the new endeavors seem difficult. Each one brings unique challenges.

Through its acquisition of Pure Digital Technologies and that company’s Flip video camera, Cisco has entered consumer electronics, a new area for the company requiring a new set of skills and invoking new competition. Cisco’s foray into smart-grid technology similarly takes it into unfamiliar territory. Cisco has gotten into digital signage and other markets, too.

Chambers says more diversification is on the way, yet other network-related markets on the Cisco horizon.

Betting against Cisco probably isn’t a wise proposition. A cursory review of the company’s past performance demonstrates that it usually meets its market objectives.

Still, one has to wonder whether the pursuit of growth in an unbounded number of network-related markets eventually will lead to a diffusion of focus and a dulling of purpose.

Can Cisco buck the trend and turn the age-old adage of its head? Can it become the master of all trades and the jack of none?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s