I actually know a fair amount about the global competitive situation for software, not really networking though.
But just generally speaking, here is the situation.
1) too much capacity in tech
2) large US-based engineering orgs which cost 10x their foreign counterparts which (in the past) were paid for by the shareholders in the form of options.
3) commoditization of technical skills thanks to the internet and outsourcing to india already in full steam.
4) US shareholder distaste for tech and the options-based pay model.
One large US based technology company, which formerly had a large domestic development org (oracle) has solved their options pay problems and cost of doing business with almost a total dump of R&D to india (oracle is actually an indian R&D org at this point) - this has been successful. Even Hueyone said on the oracle thread that oracle's "options problem" wasn't too bad. So we have the solution, outsourcing R&D works.
R&D going from a unique, US based competitive advantage to a global commodity is tough for some to take, but we have been through this with industries before and we know that to keep these companies alive some hard decisions need to be made.
For Cisco I would say they have 2 options. The easiest would be to dump R&D in its entirety to india right now including VPs. (most of the outsourcing issues that come up in my experience have to do with communications between US management and indian coding- just move the entire business over there and you have a better solution imo). Obviously this is not a short term move, some planning needs to happen as well as sourcing of skillset over there. We know all kinds of software talent are available in india so that area should go first. Hardware, I'm not sure. If skills aren't available in india or china then obviously it needs to stay- but at a much lower cost. Engineering salaries here need to drop to 60K MAX. (half what they are now for the better people).
Another option for Cisco which is more drastic and not really optimal would be to dismantle the company and merge with IBM (services), Dell or Intel (platform/product). I'd hate to see this because I believe the Chambers mgmt team is better than the intel or IBM management at this point (not Dell), but there isn't enough business for Cisco to survive without the massive cuts above - which are hard to implement.
If Cisco was taken out by Huiwei then the US could recover the industry by starting a new networking hardware company which is sort of a virtual organization, with no domestic R&D- focusing on automating the "process" of producing a product from a software perspective in the way that Dell did for hardware. In other words, produce the software in india, the hardware in china and bring the two together with a highly automated process somehow. That is the opportunity for US companies as I see it. The fact that Cisco, Intel etc. exist actually hinders the maturation of this business imo.
From a stock market perspective, although it seems to me that Cisco is in real jeapardy of remaining viable as a company, I don't think there is much in the way of downside for the nasdaq any longer, options expensing or no. I think things will just stay flat for tech in the US until that virtual company model for software gets tuned by the next high growth emerging player (which will not be cisco, intel or msft imo). I'll bet Huiwei as a company is a buy from an invesment perspective though.
Lizzie |
