Cisco: The Inside Story

Cisco, the name connotes a large networking firm spread globally. However, past few months seem quite tough for it.

The networking giant announced a whopping 6,500 job cuts or 9 per cent of its full-time workforce as part of a cost-cutting blitz. The firm is scaling back its operations and making endeavors to cut $1 billion from its operating expenses to stimulate profitable growth. Along with layoffs, the company is also considering selling a set-top box manufacturing facility in Juarez, Mexico to Taiwan-based Foxconn Technology. The developments are not indicating positive signs.

CEO John Chambers blamed the tightening budgets in the public sector for gloomy condition of the firm; contrary, other tech companies are posting strong financial. Such scenarios are bringing the focus back to company and the strategy being followed.

If we evaluate these issues step by step, the following points stand strongly disappointing for the company's bright future:

A flop show at Consumer market

Cisco forayed into the consumer market by acquiring Linksys in 2003. Now, the company is mulling over the sale of its Linksys business. It has also shut down the line of Flip Video cameras. This indicates that Ciscos entry into consumer market has failed to yield any fruitful results.

But, Ciscos consumer products are not solely to blame for its loss. Cisco is a $40 billion dollar company and its consumer efforts account for just $1 billion. This clearly suggests that reason is something beyond its consumer business.

Friends turned foes

Two years ago, Cisco followed the track of HP and IBM and made its presence felt in enterprise data center business. Even though the company has acquired a decent market share of around 11 percent of the global blade server share or 2 percent of the total server market worldwide, it has made Cisco to pay heavily by turning former partners into hard-core competitors.

Lost Focus

Cisco has tried expanding its reach into unfamiliar zones and ignoring the core competency and the focus : networking. The market for enterprise networking equipment (primarily switches) is virtually stagnant.

Cisco is clearly losing out to the intense competition from HP-3Com, Juniper, and F5 Networks. Its competitors pulled the entire concept of networking out from Cisco. These are offering products at lower prices leaving Cisco with no other option but to either accept lower margins or start bidding adieu to its customers.

The company, however, is still recording profits, but these are relatively low as compared to the last year. And perhaps more importantly, Cisco is losing credibility among investors.

The networking giant is seeking acquisitions, both large and small, to strengthen its market share.

Cisco still has plenty of innovation and knowledge locked inside, conditionally, it realigns its strategies and refocuses on its core areas.