Monday, June 4, 2012

Is Cisco too big to fail?

From a personal perspective, I love my iPad and go almost everywhere with it.  At the same time, I think that I have to pay almost double for it versus what it should cost.  Why is the iPad overpriced, you ask?  I lay the blame squarely on Microsoft.  For years, Microsoft was so dominant in all things web, PC, and software that they went to sleep.  So when Apple blew onto the scene with the iPod, iPhone, and iPad Microsoft was asleep.  In fact they were sleeping so soundly that four years later they still can't come up with anything to compete against Apple.  (Zune, really??)  Microsoft's lack of competition has seemingly made them unable to compete against Apple.  It's a paradox, I know.  Does that mean Microsoft is going the way of the dodo bird anytime soon?  Hardly, but what it means for me is that Apple can charge me twice as much as it should be able to for its products simply because there is no competition and they know it.

So let's take a look at Cisco.  Unless you're in IT (or the world of financial investment), you probably don't spend much time thinking about networking.  If you did you'd find that the topic is incredibly rich - software, learning systems, hardware, fiber optics, and even quantum computing.  Cisco, for decades, has been the 800 pound gorilla of networking.  Today they have annual revenues of almost $50 Billion and a market cap which, at $90 billion, is about twice that of Hewlett Packard.  Cisco sells networking products on six continents and spends more on R&D than any of its competitors although IBM is a close second.  Given that Cisco is such a "heavy hitter", why then has their stock lost over 25% of its value year-to-date in 2012?  Granted, its stock had a good run towards the end of last year but that's not making investors and institutional holders feel any better right now.

The next revolution in computing is coming in the networking space.  Computers have become so powerful and storage is becoming so ubiquitous that the bottleneck has become the speed at which information can be moved from one point to another.  Also, where networks used to be "dumb", acting much like water piping in your home, the science is moving towards intelligent, learning systems.  These next generation networks are being created to evaluate data packets and route them like an omnipresent traffic cop.  When they fully replace the older networks, we will experience the next big revolution in computing.  Rather than measuring throughput in megabits per second MBPS and latency in milliseconds we will be seeing traffic move at giga and peta bytes per second at latency rates in the micro range.

The technology that I am referencing directly above has been commercially available for almost two years - from Juniper Networks.  The Juniper product is called "Q Fabric" and is so advanced that you could almost call it "creepy".  So where is Cisco's response to this upstart challenge?  Well, we might see something come out in 2013 from their project codenamed "JawBreaker".  Folks, I don't know what you think but a three-year lag against a competitor is either a brilliant move to let them iron the bugs out of the new technology or its the act of a company that has fallen asleep.

Unlike Microsoft, which has so many product lines that it's hard to find a beginning and an end (Windows, XBox, Office, Exchange, Visio, IE, etc, etc.) Cisco is really just a networking company.  As the stock market is showing through punishment of its stock, Cisco needs to become more nimble and agile, fast.  Will Cisco get crushed by a competitor overnight or even in a decade?  Not likely.  Is Cisco too big to fail?  Hardly.

2 comments:

  1. This blog is exactly what I've been searching for! I found this blog bookmarked by a friend. I will also bookmark it. Thanks again!

    Cisco Stock (CSCO) Quote

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  2. Hi Retta. I'm so glad that this blog post was helpful for you. I can see that you're monitoring the stock and that you can see how Cisco's plans are now starting to be revealed.

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