Cisco will "double down" on video as it goes forward, chief executive John Chambers told investors and analysts in San Francisco Thursday. However, he said he faces "tough decisions" in other areas as the company seeks to regain its status as a high-tech bellwether.
Chambers spoke just days after <penning an internal memo in which he admitted that Cisco had "disappointed our investors" and "confused our employees" with underwhelming performances in recent quarters.
The head of the $40 billion company did not lay out the specifics of changes coming to Cisco during the San Francisco event, but investors polled by Bloomberg were clear about what they'd like to see the networking giant do—dump the tangle of low-margin consumer businesses it has acquired in recent years.
"I look at Cisco as more an enterprise player. The consumer is not a natural extension," the news agency quoted Synovus Securities fund manager Dan Morgan as saying. Joanna Makris, a Mizuho Securities analyst, told Bloomberg that Cisco had "lost so much share and thought leadership."
Some analysts blame such consumer ventures as home networking, set-top boxes, Flip video cameras, media storage and home video conferencing for dragging down Cisco's gross margins and presenting the marketplace with a picture of a company confused about its own strengths rather than committing itself to the enterprise networking infrastructure business that made it so successful.
High-profile Cisco forays into territory well outside its core business include the acquisition of consumer networking brand Linksys in 2003 and Flip Video maker Pure Digital Technologies in 2009.
In recent years, the strengthening enterprise networking portfolios of rival companies like Hewlett-Packard and Juniper Networks may have also had a harmful effect on Cisco's once heady margins in the router and switch market where it once faced only marginal competition. Cisco enjoyed 70 percent gross margin in 2003 but that had slipped to 64 percent in 2010.
Chambers told investors that Cisco's router business remains strong but it faces tough challenges with switching equipment as competitors have grown stronger.
"Switching is our challenge. It's going to be a tough market for us," he said at the Wells Fargo-hosted technology conference.
Chambers spent a lot of time Thursday talking about rededicating Cisco to the nuts-and-bolts of the networking infrastructure backend. But he also was adamant about remaining committed to certain end-to-end technologies involving both hardware and software development, like Cisco's Unified Communications portfolio and TelePresence videoconferencing products.
Cisco will also continue to play in the collaboration and mobility arenas. The company could be releasing its first business-class tablet PC, the Cius, next month. The Android-based tablet is already in the hands of Cisco's distribution partners, according to reports.