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Dark Lining for Cisco?

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“If I wasn’t American, I would be Chinese,” Cisco CEO John Chambers, in an interview with the Xinhua Press Agency.
Some might call it sucking up, but I call it the ultimate salesmanship from the consummate salesman. And as long as he is there, Cisco doesn’t have to worry about a thing. Call it the Chambers’ premium! Still there are many who believe that Cisco’s best days are behind it, and the company will have a constant struggle going forward.

“Cisco is vulnerable in that they don’t have any strong competition. So just to be a competitor of note is very important. When we’ve gone head-to-head with Cisco, we’ve had many wins,” boasted Bill Owens, chief executive officer of beleagured telecom equipment maker, Nortel. He was chatting with Jim Duffy, editor of Network World. I find the remarks amusing given the lacklustre performance of Nortel in the enterprise business. Bay Networks anyone? Never mind the fact that today Banc of America Securities issued a report saying Cisco was taking market share from Avaya and Nortel in the PBX-business. Despite, all the noise and fury, the fact remains that the only real competitive threat to Cisco in the near term is Juniper Networks, because it plays by the same rough-and-tumble rules as Cisco. In the near term, things look pretty sanguine for the San Jose-based giant.

In the long term however, a few technological and macro-economic trends are working against Cisco. Jon Oltsik, senior analyst at the Enterprise Strategy Group, in his guest column for explains this in a very coherent and simple manner. He points out that as corporate networks go through a major makeover to accommodate for higher bandwidth needs, and bigger pipes (10 gigabits/second), Cisco has a lot of competition in its bread-and-butter switch business. The competition is no-name Taiwanese and Chinese vendors who have developed decent technology. (They don’t have the software expertise, but that should come soon as well!) Then there is Dell which is flexing its networking muscles as well. Netgear, D-Link, 3Com-Huawei pose some competitive issues. Similarly, the whole network layer is being reduced to appliances – security, spam protection, acceleration boxes and so on. It allows little guys more openings to make guerrilla type incursions on Cisco turf.

What it means is that corporations could use these little guys as a stick to squeeze out more discounts from Cisco and thus cut into its industry leading profit margins. There goes the stock valuation, and the ability to acquire and hence the whole thing tumbles down. Now, having painted the doomsday scenario, I can say this: Cisco does know how to navigate choppy waters, and always manages to find the right channel to zoom ahead.

And if all fails, then Chambers could go on an ultimate sales call! It never fails!