I received a request to take a look at this website where Cisco’s Chief Operating Officer Gary Moore made some really unusual statements during the Bank of America Merrill Lynch 2014 Global Technology Conference.
Note: this is a transcript of a conference and they don’t always get the exact wording right.
The host has asked a questions about whitebox & SDN and what it means to Cisco:
And our position has always been, I mean first, eight of the global ten over-the-top providers like Amazon are huge Cisco customers. So we’re benefiting. I mean huge Cisco customers.
This statement is quite astonishing. Makes the claim that Amazon is a huge Cisco customer yet Amazon has been fiercely protective of who it does business with and never discussed suppliers. The general wisdom is that Amazon buys a limited amount of Cisco. I wonder which is right ?
Question around handling the future of networking:
We had become more, I would just call it, fat around the middle in a lot of areas than what we could afford to be given the new growth trajectory and we really were investing in too many things. So it was really a time to restructure the company, reset our OpEx. I think most of you remember we committed to take $1 billion out in three quarters. We did it in two.
This appears to be an confirmation of the view that Cisco has bloated operating costs and that executives knew two years ago that sales would fall when he refers to the “new growth trajectory”. Sales have fallen in the last couple of quarters and this looks likely to continue.
Cisco Internal Cost Control and Shakeups:
And while it was very painful three and a half years ago for Cisco to go through what we had to go through, it really did set the foundation for what we’re doing now and I actually thank God that we had that crisis because today in the way the market is moving so fast, the pace of change, if we were operating in our old environment, we would be in a very difficult shape.
Apparently God thinks it’s important to sack employees and maintain big profit margins (although some gods do). More importantly this is part of longer discussion that Cisco has reduced costs and shaken up the business internally.
Professional Services – Cisco is going to do more professional services to meet targets around service revenue growth. I wonder how this impacts resellers and partners:
We’re creating consulting services under Martin McPhee we brought in to bring both our IBSG, our free consulting around business and verticals together with Advisory Services to come at the market with vertical expertise and help customers define solutions and then go build them. So it’s no longer — let me show you — let me tell you what to do, we are actually going to do it for them. That piece of his business grew 100% quarter-over-quarter.
And they won’t disclose the services revenue breakdown. Hazard a guess here, they don’t want resellers to know how much services revenue Cisco is taking directly or they aren’t certain the growth is sustainable.
Services Revenue– A question on services revenue increasing by 10% which many see as unlikely:
I think it’s some of both, but for the most part, services will go up because we’ve built four different brand-new offerings around this and for the partners that are joining us through InterCloud, we’re doing everything from very — the original design and architecture, all the way through how they are managing the M&O, the management and orchestration as well as application identification and migration and a whole suite of things.
This suggests that Cisco expects to take strong revenue from professional services through consulting to companies that take on the InterCloud product. Reading between the lines, InterCloud contracts must come with a certain number of Cisco employees who must be paid for. Good long term business revenue, protects the InterCloud brand and provides customers with some assurance of quality.
The EtherealMind View
There is a bunch of interesting topics and some real insights into Cisco’s strategy. For network architect and strategy types, it’s worth reading to see how Cisco intends to extract more revenue from your budget in the years ahead. In particular there are several references to Cisco “analytics service offerings” which Moore states are opportunities for upsell in SmartNet maintenance. It might be worth looking into those and prepare a “defence against the dark arts” of Cisco account managers.
And resellers should probably be concerned. The networking market is set to shrink in a major way because of converged infrastructure and commoditisation. Cisco seem set to grow its service revenue at your expense and InterCloud is where they will start building their professional services business.