It seems every couple of years the chatter of John Chambers retirement as the CEO of Cisco comes up. Recently, there has been a flood of articles speculating when he might retire, including this one from the esteemed Jim Duffy. There seems to be no basis for this other than a report from Scott Raynovich, who cites a bunch of unnamed sources.
The other factor fueling the chatter is timing. Almost two years ago, Chambers stated that he would look to retire in two to four years, and we're coming up on the 20th anniversary of his CEO-ship of Cisco. Very few tech CEOs ever hold a tenure that long, so the 20-year mark seems like the right time for Mr. Chambers to end his reign at the helm of the company. Additionally, Chambers turns 65 later this year. 20 years, 65th birthday, 2 years after his statement -- it all fits together nicely.
See also: Chambers to retire this fall?
While I understand how the clues may fit together neatly, I just don't think a retirement makes much sense at this point in time. During his tenure as CEO of Cisco, the company has experienced the highest of the highs: a record market cap and talk of Cisco being the first trillion-dollar company. For decades it has dominated the networking space and taken advantage of several market transitions, such as VoIP, video, power over Ethernet, converged infrastructure, wireless, etc., to continue to add adjacent markets.
However, over the past several years Cisco's performance has bounced around, two steps forward, two steps back, one forward, and one back. Similarly, the stock price has bounced around as well, although the stock has almost doubled since mid-2011. I believe some of the challenge has been that much of the innovation in IT has not been networking related. Sure, we've had things like the growth of Wi-Fi, but at Cisco's size, it's hard to move the need. In other words, the market forces weren't really on Cisco's side. Also, there have been a number of missteps along the way -- a desire to become more of a consumer name, getting caught off guard by HP shifting from friend to foe, among others.
But the times they are a-changing, and the pendulum is starting to swing back Cisco's way. In fact, this current quarter, Bill Choi from Janney stated in his quarterly summary report that "...revenue trends point to a resumption of growth in F1Q15, as the company builds backlog and its subscription businesses." Several trends actually favor Cisco today:
- Enabling mobile and cloud computing. Both of these compute models are network-centric so, by definition, the network plays a key role in the success or failure of these initiatives. Cisco has invested heavily in technologies that can optimize the performance of cloud resources and has formed partnerships with Google and Akamai. Additionally, the company can now act as a mobile computing platform through data and analytics that enable Cisco customers to build uniquely mobile applications.
- Shift to cloud services. In addition to being a cloud enabler, Cisco is also building cloud services that it can sell directly both to customers and through its channel. Additionally, Cisco recently announced its Intercloud strategy to create a network of globally, federated clouds. As Cisco grows its cloud revenue, the recurring revenue will create greater revenue stability and predictability, avoiding some of the lumpiness we've seen in recent years.
- Growth of professional services. Chambers has made some bold statements regarding becoming the No. 1 IT vendor. For Cisco, this isn't about building better boxes, it's more aligned with helping customers use the network to solve business problems. Professional and advanced services become the enabler of this shift.
- The Internet of Things. Many people I talk to look at IoT as a trend that's still a few years away. The fact is it's already here, but it's isolated to a few verticals. As the concept of IoT becomes better understood, we'll see more organizations in more verticals embrace the concept, helping IoT grow from a niche to something that becomes part of our lives. Cisco has been, by far, the most aggressive network vendor with regards to evangelizing IoT.
All of these trends should act as a catalyst for Cisco and enable the company to start growing consistently again. Given that, why would Chambers step down now, instead of waiting for these transitions to kick in fully before turning the reigns over? I understand how the numbers might be aligned to indicate a retirement is imminent, but the timing just doesn't make sense.