Even More Bad News at Cisco Systems

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Aug. 14 (Bloomberg) -- Cisco Systems Chief Executive Officer John Chambers is struggling to revamp the world’s largest networking-equipment maker, eliminating 6,000 jobs in a new round of cuts and forecasting little to no sales growth. Bloomberg Contributing Editor Paul Kedrosky and Bloomberg’s Erik Schatzker speak on “In The Loop.” (Source: Bloomberg)

Turnaround mode for 2, 3 years already.

More than two or three years.

It has cut more than 25,000 jobs in 2009. it cap hiring and buying other companies as well, betty, so you need to point out that this goes head count is up about -- cisco's headcount is up about 8000 people over that period of time, but they're cutting another 6000 jobs because cisco cannot figure out where the growth is coming from.

They know that there is opportunity in the cloud, for example.

They know there is opportunity in software.

They just do not have the products to meet that demand.

Paul, i pointed this out because i think it was about a year ago that you were on our air, and you took john chambers to task.

They were not really happy about it.

You said this really poses the question, the turnaround strategy, took john chambers strategy into question, now you have even more questions here.

Yeah.

I mean, you know, this has been a remarkable problem for them in the sense that people inside the company are beginning to call chambers teflon john.

All of this is just bouncing off of him, meaning that the company's legacy business, you think about what cisco has always been historically.

For more than a decade now leading back to the late 1990's, it is kind of like a minicomputer or mainframe company, running for proprietary software that they can sell for a quarter million dollars well up to $1 million, and those come for that essay dollars and lock customers in.

The market is changing drastically away from that using networking, which is kind of like apps.

Networking apps, running on commodity hardware, and as much as they might try to embrace this business, and they say they are, they hate it in many ways because it will cause their margins to collapse.

That does not mean a switch in the ceo role is going to change that dynamic.

Not necessarily, but the problem he has is the classic innovator's dilemma problem where the things that made him successful and got him to where he is, selling big pieces of expensive, legacy proprietary hardware are things that in the long run can doom the company.

In a sense, he has to usurp himself and tear out an awful lot of the sales and marketing infrastructure that made the company successful.

That is very hard for any ceo.

Part of the problem is the analyst community for what it is worth seems to be a little too quick to make excuses on cisco's behalf.

Cisco is subject to these macroeconomic headwinds, and there is no question that that is true.

And the emerging markets, for reasonable, it is really tough for cisco.

Resilient revenue down 13% in the quarter.

Russian president down 37% and in the quarter.

That has to do with ukraine, of course.

The company could be buying more things.

Perhaps that is a challenge because it does not trade at the same multiple as it used to, but it is a big battleship turnaround.

That is why it is taking so long.

The question i think it really should be asking is this -- all the trends fundamentally are favorable.

There is more video traffic than ever before, mobile traffic is growing at an ordinary rate, business is going to the cloud, all of this should be in cisco's favor.

Apple is growing, qualcomm is growing, facebook is growing, why isn't the cisco growing?

And you're going to ask this?

Absolutely.

I hope you do.

The question you have to ask yourself is why, and the answer in the large part is -- you've seen this in the recent battle between cisco and facebook.

Cisco wants people to buy million-dollar nexus for 800 boxes that they can then install at high margins.

New retailers do not want that stuff at all.

We want the commodity hardware that we can swap in and out at lower margins when we want to rather than when cisco wants to put us on an upgrade path.

So it really does not matter what the economic tailwinds are anymore.

The markets in but does not want an awful lot of what cisco is selling.

X all right, paul, thank you, our bloomberg contributing editor, and erik schatzker, who

This text has been automatically generated. It may not be 100% accurate.

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