The current recession is almost the opposite of the 2001 downturn for Cisco Systems because of permanent cost-cutting and the company's move into new technologies and markets, Chairman and CEO John Chambers said Monday.
Revenue and profit for the technology bellwether fell in its latest quarterly results, announced earlier this month, but Chambers said at that time he saw some hints that the economy is bottoming out. He is also hopeful about Cisco's prospects when business picks up.
In 2001, when the telecommunications business crashed from the first Internet-fueled boom, Cisco was essentially a switch and router company, and the six advanced technologies it was developing — such as unified communications, security and optical — were several years from contributing to profit, Chambers told the J.P. Morgan Technology, Media and Telecom Conference, in Boston. The company cut about 25 percent of its expenses then, including layoffs.
Cisco is in much better shape today because 25 percent of its revenue now comes from its added technologies and the company is working on getting into 30 more new technologies and markets, Chambers said. The company also has more cash now, he pointed out: It had US$34 billion in cash in 2008, he said.
Rather than cutting and then rebuilding with the economy, the cuts Cisco is making today are almost all permanent, such as slashing travel expenses to $240 million per year from $750 million by using its own TelePresence systems for virtual meetings, Chambers said. The company expects to cut its annual costs by $1.5 billion this year.
Among the company's latest key moves is into the consumer electronics market, especially with the purchase earlier this year of Pure Digital Technologies, maker of Flip Video cameras. Chambers described the cameras as business tools, too. He could record a brief video message for Cisco employees in Korea, upload it, and have it distributed, and eventually have it translated into Korean, he said. Cisco officials announced plans for automated video translation software last year and said it would ship in the second half of this year in 20 initial languages.
Cisco can move into dozens of new markets only because it's changed its management structure from top-down control by a few executives to decision-making by a series of councils, Chambers said. From 10 people running Cisco a few years ago, today 750 people are heavily involved in decision-making boards and councils and that number will soon grow to about 3,100. However, Chambers warned that collaboration and teamwork — the processes Cisco has been pushing hard with video and other products — don't always work. Sometimes command and control is necessary.
“My mistakes have always been when I've moved too slow,” Chambers said. “If you wait until all your team agrees, it's probably too late.”
