Monday, June 06, 2011

Cisco Beat Down

Last week Cisco released their latest VNI (Visual Networking Index) forecast.

A nice summary can be found in two articles over at the Lightwave website. In the first, titled

"Cisco: Video among drivers for 4X Internet traffic increase by 2015" we find this summary:

The latest VNI forecast cites four factors, including the video user increase, for the significant escalation in Internet traffic:

  1. The number of connected devices will skyrocket. In fact, at nearly 15 billion, the number of devices connected via the Internet in 2015 will be twice that of the Earth’s population.

  2. Which is not to say people will use the Internet less. Cisco foresees the number of Internet users will grow to nearly 3 billion by 2015. This figure represents more than 40 percent of the world's projected population.

  3. Broadband data rates will increase. Cisco expects fixed broadband rates, such as those available via FTTH, to increase 4X, from 7 Mbps in 2010 to 28 Mbps in 2015.

  4. As the number of online video users increases from 1 billion in 2010 to approximately 1.5 billion by 2015, 1 million video minutes will cross the Internet every second, according to Cisco.

The same author in an article titled "The future according to Cisco", provides some of the longer term predictions:

  • Global IP traffic is expected to reach 80.5 exabytes per month by 2015.

  • Cisco's projected increase in Internet traffic between 2014 and 2015 is 200 exabytes. That's more exabytes than the total traffic for 2010.

  • The 245 terabytes per second transmitted traffic average in 2015 is equivalent to 200 million people streaming an HD movie (1.2 Mbps) simultaneously every day.

  • In 2010, PCs generated 97 percent of consumer Internet traffic. This will fall to 87 percent by 2015 as more connected devices come online.

  • In 2015, 10 percent of global consumer Internet traffic and 18 percent of Internet video traffic will be consumed via TVs.

  • Global mobile Internet data traffic will increase 26X by 2015, to 6.3 exabytes per month (75 exabytes annually).

  • Business IP video conferencing will grow 6X -- more than 2X as fast as overall business IP traffic, at a CAGR of 41 percent from 2010 to 2015. (And, yes, Cisco provides telepresence equipment.)

I'd be careful with these stats. Consider the source. And along with that, I'll say that predicting anything network -related out much farther than 12 months should, at best, be labeled a dubious proposition.

Shares of Cisco and other networkers have been weak for what seems like forever. Once the darlings of Wall Street (you probably remember those days) they have been banished to the woodshed.

What happens to a company when they go in to a funk like this? The stock price languishes, the CEO' s feet get put the fire and Bloomberg, of all places, starts to write hate stories:

"Cisco Rivals Woo Users With Price Cuts, Less ‘Intimidation’"

Correct me if I am wrong but I don't recall Bloomberg writing stories like this in the past. This reads more like something you would find on the Huffington Post.

Over the weekend the San Jose Mercury News chipped in with a story that took a shot at CEO John Chambers. Several analysts chipped in (with the usual strategies) ways Cisco can turn itself around:

"Cisco's stumble: Did CEO John Chambers underestimate Silicon Valley rivals?"

Notable: "Cisco's share of global switch sales fell from 74.3 percent a year ago to 68.5 percent in the first quarter of 2011, while HP, Juniper and Brocade increased their portions, according to researchers at Dell'Oro Group."

And this:

"Many analysts believe the company lost that focus as it expanded into a host of other businesses. Some have also blamed Chambers' reliance on interdepartmental "councils" and "boards" to steer new initiatives. Critics say the unwieldy structure hindered Cisco's response when rivals began selling switches with lower prices and improved features."

Will comments like these push management toward the light? Surely they are listening. Cisco is a big ship and it is going to take them longer than just a few quarters to turn things around. Those that are invested in shares should prepare to exercise a great deal of patience as the flushing takes place.

Speaking of quarters, my friend Pip Coburn over at Coburn Ventures had this to say last week in a discussion about Cisco and Wall Street's infatuation with companies that "beat the numbers":

Wall street rewards companies that play the stupid quarterly key performance indicator game because it is lowest common denominator -- it takes ZERO thought... They "made" or "missed"... Reward/punish, play again...

SHAME on boards of companies if they don't see the paradigm and stay clear of it and there ARE many companies that DO avoid merely becoming a series of key performance indicator tactics masquerading as "strategy".

Congrats to Cisco for waking up - (my add here - have they really woken up?)

They (Cisco) may find that they need a fresh start with "investors" and there may be a period during which ALL the old investors have to be flushed out and the right new matches must be steadily made... Kinda like a juvenile drug addict being told he has to give up his old "friends" and find new ones. The old "friends" weren't really friends but rather facilitators of the addiction.

I couldn't agree more…….

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