Another, more interesting version of Chambers' comments at ITexpo '98. Note last part on future business. Tulvio
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zdnet.com
Cisco's Chambers paints a rosy picture in a tough market
By Erica Schroeder, PC Week
October 13, 1998 2:41 PM PT
LAKE BUENA VISTA, Fla. -- Cisco Systems Inc. President and CEO John Chambers took the hot seat today here at GartnerGroup's ITxpo '98, discussing the increasingly strategic role of networking in the corporate world and defending his company's high margins on hardware.
Answering questions from GarterGroup analysts Bill Malik and Joseph Baylock, Chambers pointed to the increasing interest shown both by business executives and government leaders towards networking equipment and infrastructures.
"There's a fundamental change in business leadership," he said. "This technology has moved from being plumbing" to becoming a critical piece of business strategy.
That shift and the development of new economic models portend an onset of "Internet wars," Chambers said. "It will have the same effect as the Industrial Revolution," he asserted.
Discussing electronic commerce and Cisco's position as one of the forerunners in that market, Chambers detailed some of the advantages that have resulted from moving much of his company's business to the Web and expounded on his vision of where the market was going.
"We saved 20 percent off our expenses last year by going to Web-based applications," he said, noting that 64 percent of Cisco's sales are over the Internet, which amounts to a whopping $5.6 billion. In addition, Cisco has saved $200 million in moving much of its customer service to the Web.
While the majority of e-commerce today is business-to-business, both Chambers and the two analysts agreed that the consumer market will pick up over the next three years.
"80 percent of the e-commerce business today is business-to-business," Chambers said. "That will change, with the majority being done by consumers ... by the year 2001."
Companies not jumping into e-commerce "are in the Dark Ages," he said, "and [are] going to get left behind."
Between 30 percent and 50 percent of all automobiles purchased in the United States will be sold over the Web by the year 2005, Chambers predicted. The GartnerGroup analysts were more conservative in their estimates, but Chambers took them to task, asserting that while initial estimates for e-commerce revenue, like those concerning most new markets, were too high, the revised estimates have been too low.
Responding to questions about Cisco's financial health in light of turmoil in Asian economies and a potential slowdown in the U.S., Chambers split the San Jose, Calif., company's markets between enterprise and carrier products and discussed the different outlooks.
"We were one of the few companies to see a slowdown in Asia," he said, noting that Cisco told analysts about the slowdown 18 months ago. "Unfortunately, it was deeper than we thought."
Still, Cisco has increased headcount in Asia, excluding Japan, four-fold in the last year, he said.
In the carrier space, the markets look "pretty good worldwide," Chambers continued, in part due to increased competition thanks to deregulation, which has been compounded by the move to integrated voice, video and data on a single data network.
"Service providers will build out even through tough times," he said.
Capital expenditures in the enterprise market, meanwhile, are directly linked to the economy, and Chambers said Cisco could expect to see 30 percent growth rates in a good economy swinging to negative growth rates in a recession.
With its entry into the carrier market, Cisco is facing stiff competition from entrenched heavyweights such as Northern Telecom Ltd., Lucent Technologies Inc., Ericsson Inc. and Alcatel. Chambers believes Cisco can take advantage of the transition to multiservice voice/video/data networks while the carriers adjust to new technologies and demands from users.
To augment that thrust, acquisition-hungry Cisco will aquire 10 to 12 more companies this year. But, even with the headaches and turmoil of digesting and investing in more than 50 companies, Chambers chose to characterize Cisco as a smaller, nimbler company compared to its competitors.
"What large, traditional companies have had trouble doing is bringing products to market quickly," he said, noting that, driven by a "healthy paranoia," Cisco intends to execute product plans quickly.
"Size may not be an advantage at all," he added.
Discussing pricing pressures and profit margins, Chambers cited customers who want service and support along with products.
"I think you will see people move to a preferred vendor," he said. "They're looking at total cost of ownership, not just the [purchase] transaction." |
