None of these metrics recall the glory days of Cisco's youth in the late-1990s. But they paint a portrait of a middle-aged tech giant in the early stages of a successful turnaround amid a skittish global economy. Turning around a tech giant like Cisco is no mean feat. IBM pulled it off, but it did so by pushing from hardware into services and consulting. That's not an option for a networking equipment maker like Cisco. Only a fifth of its revenue comes from services, largely customer support.
Cisco is also recovering from a couple of costly missteps it made in recent years. As routers and switches became low-cost commodities, Cisco moved into new markets: teleconferences, set-top boxes, the Flip camcorder. But some moves proved ill-advised. The company was also slow to take seriously the competition that HP and others were presenting to its core market.
That changed this year. Cisco sold off set-top box operations, killed the Flip camera and began laying off as many as 10,000 workers. It began getting tough with its competitors, including a snarky web site with videos poking Juniper for its product delays. For the first time, sales teams were paid according to their contributions to gross profit. "We are more aggressive on the competition, we are going to be tough on our competitors, whether they are Juniper or HP and Huawei and Avaya, and it's something that I think, we were a little bit to general on in the past," Chambers said in the earnings conference call.
Meanwhile, Cisco is seeing growth in newer areas. Revenue grew 13% from video systems for ISPs, 12% from collaboration services like video conferencing and enterprise social networks and 107% from the data center division.
In February, after Cisco posted yet another disappointing quarter, Chambers told the street that the pieces were in place to turn the company's financial performance around. Many analysts scoffed, and the stock price sank. But in retrospect, Chambers may have been right. Three analysts upgraded their ratings on Cisco last week, and others lifted their price targets.
Still, some concerns remain. Analysts at Barclays and Merrill Lynch said it was too early to declare Cisco's turnaround a sure thing. HP and Juniper are distracted with their own problems, and once those are sorted out they could wage another price war in switches and routers.
That may be, but Cisco still has an advantage of being the first of these companies to get its house in order. It's made several difficult moves this year and seems serious about doing what is necessary to keep the turnaround going. That might not be the second act Cisco imagined for itself, but it may just be compelling enough to keep investors in their seats.
