That said, you are correct. Working on 10 percent or less margins is going to be difficult for Cisco, but with HP attacking their core switching business, they didn’t have much choice. Ultimately, gluing Intel chips to a board with some fancy bits and bobs isn’t really changing the world.

This must have deverstating effects on the Cisco results – while they at the same time will be highly dependent on partners for vital parts, such as the hypervispr (vmware) the SAN (EMC) and implementation partners (Accenture)….while at the same time battling their services organisation to move into providing business critical services of real customer applications.

Strange – why would Chambers put himself into the aimingpoint for HP with all the trouble this causes, and risking the profits.

I would not put my saving into Cisco these days – it like putting them om the green number on the roulette.

I like your articles, and I have to say I agree with you so much on this one- they are way too expensive. As an example we have HP ProCurve (2524,2510) in our branches, and there are so bad switches because of lack of feature software, lack of support, documentation and so on -and they some time fails due to some stupid problems “like bad nics, creating loops or some floods” problems that I never see to affect the branches where we have Cisco swicthes (2960,2950). However even though we have some major outage (1-2 hours) caused by these problems in some branches, and as I proved that these problems never happens with cisco switches, the management still doesn’t consider choosing cisco over HP because of the price of course. With these recession even with a solid discount from our partner the cisco price is way to high compared to HP. So we are kind of stuck – with no choice but to wait and see if cisco lowers their price or if there will be a serious competitor – one that may come close to the “quality “of Cisco

If enough people stop getting the extra value, then the price — and corresponding margins — will inevitably fall.

And if the quality of the gear and service falls below that of a competitor, then purchasers will flee to that other vendor.

That said, we use Cisco selectively — in the core of the network, where the brains are — but use cheaper, commodity equipment at the edge, usually with cold- or warm- spare gear standing by.

For example, resellers often work on between 5% to 10% margin. That has to include the cost of finance, administrative, sales, pre-sales engineering and so on. Cisco has greater costs due to development and manufacturing perhaps but think of this:

If I do a deal with Cisco for a million dollars, the raw goods I receive has a cost price of around $350K. The other $650K is for what, exactly ? I could accept say $200K, or maybe $300K, but $650K looks excessive.

And with Cisco beginning to fail in some market segments, it’s time to question the value for money proposition.

Just my weird thought, I don’t have time to dig into Cisco’s financial statements (although it would be fun .