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April 6, 2011 12:33 am
John Chambers, chief executive of Cisco Systems, made a rare admission of management failures at the heart of the internet equipment company as it signalled a shake-up to refocus Cisco on its most important markets.
The comments, in a bluntly worded e-mail on Tuesday to Cisco’s employees, follow a fall in confidence on Wall Street in the company in recent months. Investors have become concerned about perceived overexpansion into new and low-margin businesses such as consumer products, and fears have spread that China’s Huawei is starting to eat into Cisco’s core switch and router markets.
Cisco’s stock has fallen 35 per cent over the past 12 months at a time when the Nasdaq Composite has risen by 15 per cent.
Mr Chambers stopped short of outlining the steps he would take to put Cisco back on track, but his internal call to action was seen on Wall Street as a signal that after years of rapid expansion, Cisco was preparing to cut back, with consumer products likely to see much of the retrenchment.
Mr Chambers said the company’s strategy was “sound”, but added: “It is aspects of our operational execution that are not. We have been slow to make decisions, we have had surprises where we should not, and we have lost the accountability that has been a hallmark of our ability to execute consistently for our customers and our shareholders. That is unacceptable.”
Wall Street has become increasingly agitated in recent months, with the mood among investors turning sour after disappointing results in February.
Commenting on Cisco’s rapid growth, Mr Chambers said: “Many say that in the face of this expansion, Cisco needs more discipline. I agree. It’s time to focus.”
Mr Chambers said the company would refocus on its core markets in routers and switching, collaboration, data centre virtualisation and video. He also promised a change of approach in the management of the company’s traditional markets.
“In switching we understand that our customers are buying across broader segments and specific needs in this market,” he wrote. “We understand that our competitors in this area are fierce, with different business models and architectures.”
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