Shulou(Shulou.com)06/02 Report--

The recent launch of a new Silicon One chip and a new product family, Cisco 8000, shows Cisco's determination to embrace the "cloud" era.

So far, this "Golden Gate Bridge of the Internet" has served the Internet and data transmission for more than 30 years. At its best, the global market for network equipment such as routers and switches was almost controlled by Cisco.

However, the former overlord still inevitably ran into a "midlife crisis". "Transformation" has almost become a key word locked up with Cisco in recent years.

Can the beleaguered Cisco return to its peak with the launch of Silicon One chips and Cisco 8000 products? Perhaps the process of striving forward is more worthy of taste than the exact result.

From Golden Gate Bridge to decline overlord: Cisco's Thirty years

We will not repeat the glorious history of Cisco. What I want to explain here is how Cisco fell into the doldrums.

The decline of a generation of industry hegemons often involves a wide range of complex situations, and it seems that some changes will take place year after year that will not lead to catastrophe and have nothing to do with the purpose. But there are always some time nodes, which seem subtle, but they are the crux of the past and the opportunity of the future.

When it falls to Cisco, two key time clues have to be mentioned:

One is the year 2000.

In 1986, Cisco launched its first product for the fledgling Internet. Since then, with the rise of the Internet, there has been a sharp increase in global data transmission, and Cisco has become the top network equipment.

Cisco's first major Waterloo came at the beginning of the new millennium, when Cisco already had nearly 80% of the world's market share of routers and switching equipment and ranked first in market capitalization. But since August 2000, with the bursting of the dotcom bubble, Cisco's share price began to plummet, and a series of rescue measures to lay off staff, clear inventory and cut product lines began in 2001.

At that time, CEO Chambers announced the only major layoff in Cisco's history, and he reduced his salary to $1 a year, which was once rumored to be "overcoming the hard times together." Since then, Cisco has come out of the trough, but it has never returned to the golden age of absolute monopoly in the last century.

Another turning point for Cisco took place in 2015.

At the end of the previous 15 years, although Cisco's market share was shrinking, it still had an absolute lead, but with the rise of traditional competitors such as Nokia, Juniper Networks and Huawei, as well as the emergence of cloud manufacturers around the world, the overall demand for routers and switches slowed, forcing us to take the road of transformation.

One of the biggest changes is that Chuck Robbins, the current chief executive, took office in 2015. By 2015, Cisco's revenue in the Chinese router market had almost halved from the beginning of 2014, while Huawei's revenue jumped by more than 50 per cent, according to Sanford Bernstein.

In the face of this change, Chuck Robbins made a series of acquisitions that astonished the industry, focusing on cloud security, software, artificial intelligence, the Internet of things, and cloud calls, as well as divesting and restructuring his own business. trying to get Cisco to quickly keep up with the multi-cloud and multi-domain network environment.

Of course, all this did not have an immediate effect. Cisco's full-year revenue profit continued to decline in 2018, with net profit down 18% from $3.5 billion in the first quarter of fiscal 2020, and its share price fell 5% on the day of the disaster.

So, as Cisco's "first single, unified silicon architecture chip", can Silicon One make 2020 a "highlight moment" for Cisco and regain the market?

Three causes of Cisco's "midlife crisis"

If you want to understand whether Silicon One and Cisco 8000 products can turn the tide, you have to go back to the origin of Cisco's "midlife crisis", that is, what made Cisco "step by step" in the transition from a hardware provider to a service provider.

The most intuitive, of course, is the emergence of cloud computing.

More and more companies are abandoning their own private networks to use cloud services. According to Gartner, the global market for public cloud services grew by 17.5% to $214.3 billion in 2019. This means that the market for network equipment such as switches and routers, which used to be the cornerstone of Internet development, will encounter new challenges in market space and technical architecture, which is also the core area of Cisco.

At that time, there was a famous joke in Silicon Valley that Cisco should merge with traditional technology giants such as IBM, Hewlett-Packard and EMC, and the new company was named "Fucked By The Cloud" (done by cloud computing).

Since then, although Cisco has acquired a large number of cloud service companies, such as CliQr, which helps users simplify cloud deployment, and CloudLock, which provides cloud-network-end protection, the direction of transformation is obvious, but according to the latest financial data, software services account for about 25.58% of total revenue, which is not yet a major source of revenue for Cisco, and the growth rate is not obvious.

On the one hand, the competitive environment of the cloud computing market has long been full of giants. Amazon launched cloud services in 2006. Microsoft, Alibaba, Google and Huawei have also made great breakthroughs in cloud services. Cisco is unlikely to win the flag in one fell swoop.

At the same time, "service-oriented" means that the mode of interaction between enterprises and customers is also changing, from providing a general product to assisting in building vertical solutions for the industry, which requires the market to see the basic capabilities of comprehensive innovation across software and hardware, open source ecology, and resource virtualization, at least for now, it is difficult for the fledgling Silicon One and Cisco 8000 to do so.

And Cisco's development in the cloud market is bound to affect the revenue of the traditional hardware business and fall into the "innovator's dilemma".

The second obstacle is that core technological innovation is not enough to pry the growth curve.

In Cisco's transformation strategy, the innovation capability of the core business, that is, infrastructure such as switches and routers, will also bring good expectations. In this respect, the Silicon One chip and Cisco 8000 that support the Network for the Future (Internet for the Future) do seem to have a lot of praise, such as support for Microsoft SONiC (Software for Open Networking in the Cloud) open source software, while meeting the needs of operators for 5G network scenario applications.

But it is worth noting that the positioning of the Silicon One chip is large capacity and low cost, and it needs to integrate the three-in-one design of frame, box and exchange on the limited chip area, which seems to meet the demand of OTT manufacturers for capacity and performance-price ratio, as well as the desire of operators for chip performance. Is this kind of both products real?

At least for now, Cisco is more likely to deliver a "compromise" product, which means it is possible to have both, or it may not be achieved. Specifically, we have to wait until partners such as AT&T, Facebook and Microsoft "try it" before coming to a conclusion.

However, the failure to deliver a real and reliable killer innovation breakthrough has become a key factor in Cisco's uncertain future.

Equally worrying is the Asia-Pacific market, where Cisco continues to fail.

The news of Cisco's suspension of operations in China is no longer news, and in Cisco's latest quarterly results, revenue from the Asia-Pacific region fell 8% from a year earlier. By comparison, revenue growth in North America, Europe and Africa was basically maintained at around 4%.

Obviously, the difficulty of breakthrough in the Asia-Pacific region, especially in the Chinese market, will continue to be an absolute obstacle to Cisco's strategic revenue growth.

In particular, this AI-driven enterprise digital transformation greatly depends on the support of business processes for local market products, operation ideas, industrial research and development, not only for political reasons, but also for the price of Cisco products and the tendency of operators. I am afraid it will be a major challenge to Cisco's next growth curve.

Overall, Cisco is actively eager to catch up with the hot spots of 5G + cloud + AI, and then extricate itself from the "stumbling" of intelligent digitization.

But times have changed, and some of Cisco's past success genes no longer work, such as finding the latest and best technologies and directly "buying" and then benefiting from monopolies. There is a sharp contrast between never-ending acquisitions and always sluggish service.

At the same time, the gap between Cisco and its competitors has gradually widened. If Cisco wants to squeeze into the first camp of network infrastructure, the premise of future possibilities will be harder determination and faster and stronger acceleration.

This is how traditional technology companies, including Cisco, were described in the book Top of the Wave:

"for more than a hundred years, there have always been companies that have been lucky, consciously or unconsciously standing at the forefront of the technological revolution. Even if they don't do anything, they can drift forward smoothly with the waves for a decade or more. They represent the wave of technology that has been extremely brilliant until the next wave comes."

Transformation is a painful proposition for any "giant". From the fall and forge ahead of Cisco, Chinese companies may also have read the value they should deliver to the world.

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