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What Cisco needs beyond layoffs

BOSTON: It will likely take more than a quick reorganisation for Cisco Systems Inc Chief Executive John Chambers to turn around the troubled technology bellwether.

Chambers, a Silicon Valley icon who has run the company for 16 years, put his job on the line last month when he told investors that Cisco had lost its way in recent years as it spent heavily to expand into dozens of new markets.

Since the rare admission, he has trimmed the company’s bloated management structure, offered early retirement to some employees, killed the Flip camcorder and laid off 550 workers.

More changes are in the works. Wall Street analysts will grill him about what’s next on Wednesday when Cisco holds its quarterly earnings conference call. Expectations are low as the company has disappointed for the past three quarters. Its shares have lost 20 percent of their value since the company’s last quarterly report, on Feb 9.

Analysts want to hear how Chambers intends to revive his bread-and-butter business of selling the plumbing of the Internet and corporate networks. They will zero in on its switching business, where sales dropped 7 percent in its most-recent quarter.

“They’ve been under margin pressure and share pressure and it’s only going to get worse,” said Joe Skorupa, an analyst with Gartner.

The research firm recently issued a report advising clients who had long used Cisco switches to diversify their networks to include products from other manufacturers including Hewlett-Packard Co and Juniper Networks.

Multiple rival providers

Conventional wisdom has been it was cheaper to build a network with equipment from a single provider — Cisco — because those switches were designed to work together.

But Gartner told its clients they were better off using multiple vendors — summing up the trend of past years in the $21 billion-a-year market for switching equipment, where Cisco commands a 67 per cent market share.

Rivals such as Juniper and HP have caught up with Cisco in terms of features, sell their products for less and provide software for operating their switches that is easier to manage than Cisco’s offering, Gartner told its clients.

“Folks are nipping at their heels from a technology perspective,” said Gerard Gibert, CEO of Mississippi-based Venture Technologies, a firm that sells Cisco equipment.

One area where Cisco has fallen behind is in manageability. The company sells several lines of switches, which run on different operating systems.

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