By Kevin Kelleher, contributor
FORTUNE -- As a purveyor of switches and routers that form the Web's backbone, Cisco Systems is responsible for building the Internet. Perhaps more so than any other company. But as the Internet evolves, Cisco has entered a kind of middle age, struggling to find new areas of growth as it fends off competitors in a market where its signature products have become commoditized.
The Internet's networking structure has largely become much more sophisticated. The core networking gear of switches and routers that was Cisco's (CSCO) bread and butter for years has largely become a commodity, while some of the more complex tasks of controlling the dynamic flow of data is managed by software running on top of the hardware. As a result, Cisco has lost some of its share of the networking-gear market as companies like Juniper have offered more competition. In an April 2011 memo to Cisco staff, Chambers acknowledged the lack of focus. Chambers said candidly, "Many say that in the face of this expansion, Cisco needs more discipline. I agree."
Cisco has pushed into higher-end networking equipment, but its overall business in these areas is declining: Both switches and routers, which make up 62% of the company's total revenue, declined 2% in the most recent quarter from the year-ago period. Other areas Cisco has moved into, in contrast, are doing much better: Service video is up 30%, wireless revenue is up 38% and data center revenue is up 61%. Together, these three segments account for only 22% of Cisco's total revenue.
Cisco's initial response was to make a detour into more consumer-oriented networking technologies. Several years ago, began selling set-top boxes, Linksys home WiFi routers and the Flip video camera. That detour proved largely ill-advised, and Cisco sold off its set-top boxes and folded up its Flip business as smartphone cameras proved increasingly popular.
More recently, Cisco has embarked on an even more aggressive goal -- transitioning from the top Internet communications company in the world to becoming the top IT company in the world. "Bottomline, we're starting to become an IT player," CEO John Chambers said in Cisco's earnings conference call this month. "It's an important aspirational goal for us to become the number one IT player. Time will tell if we can do that or not, but we like what we're seeing in the market overall."
Cisco's expansion into areas like Internet security, wireless technology and data centers are a part of this strategy from communications equipment to a broader portfolio of IT hardware and services. The announcement last week of Cisco's $1.2 billion purchase of Meraki is another big step toward the vision Chambers outlined. Meraki's cloud-networking platform offers Cisco a stronger presence in WiFi and mobile management. Most of Meraki's customers -- including Nordstrom (JWN), Applebee's, Starbucks (SBUX), local governments and universities like Stanford and MIT –-- are mid-sized institutions, an area of the market Cisco has not focused on so far.
Rob Soderbery, Cisco's senior vice president of enterprise networking said in a call to investors, "I believe that Cisco and Meraki will transform how midmarket organizations...build and consume network technology. So this is not just a product technology or talent acquisition, we're bringing Meraki in as the new platform within Cisco for cloud advantage networks."
Cisco's stock is up 5% since announcing the Meraki deal. Analysts noted that the deal could strengthen Cisco's 50% share of the WiFi market: Most of Cisco's WiFi customers are larger customers, and Meraki could bring smaller customers into its fold. What's more, Meraki's cloud-based platform can handle IT maintenance without taking on more IT staff. Jason Ader, an analyst at William Blair, said in a note last week that "Meraki's cloud based management software is the crown jewel of the deal from Cisco's perspective, and could be used to 'cloudify' multiple products within Cisco's enterprise portfolio in the future."
Cisco ended October with a $45 billion cash stockpile, enough to allow it to make more targeted acquisitions like Meraki. The business of building the Internet's backbone may not be as lucrative as it was a decade ago, but Cisco seems to have learned to expand prudently into new areas of growth related to that core business.
May -- not April -- was the cruelest month for quality tech stocks. And not just because of the botched Facebook IPO.
By Kevin Kelleher, contributor
FORTUNE -- April, as T.S. Eliot famously said, is the cruelest month. But for investors who put their faith in tech stocks, it's hard to look back on the past month and feel good. No, the merry month of May has been cruel. And there's MOREMay 31, 2012 6:01 AM ET
The market seems to be welcoming business-software IPOs with open arms, provided they offer some cloud computing capabilities. They are not, however, being met with the critical scrutiny Facebook has received.
By Kevin Kelleher, contributor
FORTUNE -- Facebook may be grabbing the lion's share of IPO news coverage these days as the social network prepares to raise $5 billion from the public markets. But even as Facebook's planned IPO seems to be MOREFeb 27, 2012 10:35 AM ET
Three years ago, CEO Larry Ellison trashed the cloud, calling the idea 'gibberish.' Now, he's changed his tune, trying to embrace the cloud. Question is, does the cloud really want to embrace Oracle?
By Kevin Kelleher, contributor
FORTUNE – First, Oracle ignored the cloud. Then Larry Ellison, its CEO, ridiculed the cloud. And now Oracle is trying to buy its way into the cloud. The question is: what exactly does the cloud MORENov 3, 2011 1:45 PM ET
The competition between Microsoft and Google is heating up. This time, the tech giants are dueling over cloud-based software tools (think calendars and online documents) and the small- and medium-sized businesses that buy them.
FORTUNE -- It may not sound quite as sexy as search, web browsers or mobile phones, but there's growing demand for moving all sorts of office applications to the cloud. That's why, Tuesday morning, Microsoft took the wraps off MOREMichal Lev-Ram, writer - Jun 28, 2011 9:59 AM ET
A company that wants to bring online storage and sharing to the masses? Hardly original, but with numbers like these, Dropbox may do just that.
The startup on every venture and angel investor's lips these days isn't a social media company or a site hawking coupons. No, the tech world is currently enamored with Dropbox, a four-year-old company that aims to bring cloud computing -- that catchall phrase corporations use MOREJP Mangalindan, Writer - Mar 16, 2011 5:00 AM ET
Every day, the Fortune staff spends hours poring over tech stories, posts, and reviews from all over the Web to keep tabs on the companies that matter. We've assembled the day's most newsworthy bits below.HP beat analyst expectations for its fourth quarter earnings, but only just slightly, with sales of $33.3 billion, up $2.5 billion compared to the same time last year. (Analysts had predicted revenue of $32.75 billion.) (internetnews) Enterprise network MORE JP Mangalindan, Writer - Nov 23, 2010 6:00 AM ET
The web-based OS can still be a winner for Google if it can execute.
The word on the street today (and last week) is that Google's ChromeOS is delayed, or rather that devices running the new web-based OS aren't due until 2011. Google went on record in May saying there would be "devices" later this "fall".
"We are working on bringing the device later this fall," said Google vice-president of product management Sundar Pichai at MORESeth Weintraub - Nov 23, 2010 3:31 AM ET
Welcome to Google's Cloud Connect, Microsoft Office users.
With its purchase of DocVerse in March, Google (GOOG) obviously had the intentions of integrating Microsoft Office Applications into its Google Apps Cloud. Today, Docverse has turned into Google Cloud Connect.
With the plug-in, Office users can now simultaneously edit and store their documents in the Apps Cloud space that Google provides to businesses and schools.
Microsoft (MSFT) has similar functionality with its Live Office 2010 applications, MORESeth Weintraub - Nov 22, 2010 12:33 PM ET
Every day, the Fortune staff spends hours poring over tech stories, posts, and reviews from all over the Web to keep tabs on the companies that matter. We've assembled the day's most newsworthy bits below.Facebook topped expectations at their media event yesterday -- they didn't just launch an email service, but a revamped Messaging app that fuses email, SMS, IM and Facebook chat. All communications between two people, regardless of format, MORE JP Mangalindan, Writer - Nov 16, 2010 6:00 AM ET
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