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Cisco's reorganisation can't unpop the bubble

Cisco's reorganisation can't unpop the bubble

Despite restructuring its business around product groups last week, Cisco Systems' reorganisation may streamline the company making it more efficient, but it's unlikely to return the vendor to its glory days, analysts and resellers say.

Cisco announced last Thursday, in the US, that it would rearrange the engineering side of its business into 11 groups organised by technology. The changes, effectively splits Cisco into one engineering unit, encompassing 11 technology groups and one marketing unit and will take effect immediately.

The 11 new groups will be access, aggregation, the IOS operating system, Internet switching and services, Ethernet access, network management, core routing, optical, storage, voice, and wireless.

"Our customers want our products to move across all of these customer segments," said John Chambers, Cisco's president and chief executive officer, in a statement.

Chambers also added an optimistic note, stating that Cisco may be primed for a financial rebound.

Since April 1997, Cisco had been organised around three market groups: enterprise, service provider and commercial. The change comes as a response to evolving customer demands, according to Chambers.

Cisco's revenue grew tremendously over the past four years, skyrocketing from $US6.4 billion in fiscal year 1997 to $22.3 billion in fiscal year 2001, but the fuel for that growth - a torrid buying spree from well-funded Internet start-ups and telecommunications players - is gone. A reorganisation can help the company, but it will not effect the slowing demand for Cisco's products, industry pundits have warned.

There's a lot of Cisco gear on the market without buyers, resellers say. Failing dot-coms and Internet service providers are dumping gear on auction Web site eBay for whatever they can get for it, some of it still in the original unopened boxes Cisco shipped it in.

"Word on the street is that there's more Cisco inventory out there than anything else," said Rohi Sukhia, president of Tradeloop, an online trading community for resellers. "You can buy used Cisco equipment for pennies on the dollar," he said. "It's no wonder they're having trouble selling new stuff."

Cisco's channel partners may prove to be another potential area of concern. The reorganisation of sales teams could herald movement toward more direct sales, leaving Cisco equipment retailers like Ingram Micro and Tech Data (in the US) in the cold, one Cisco user said.

"There have been some rumblings about moving toward direct sales," said Blake White, a network engineer project manager for Metro Information Services. "We don't know how it is specifically going to affect the channel we use today... whether that channel is going to be circumvented, with certain partners buying their equipment directly."

Still, after years of rapid-fire acquisitions - 23 companies in 2000 alone - and a radically different financial environment in which to market networking gear, a little housecleaning might be in order for the company, observers say.

The move will help Cisco keep from having researchers in two different departments from developing the same technology, and will allow engineering innovation in one section to be more quickly integrated into the others, Cisco said.

Still, an analyst calls the move "strange."

"In a time when everyone seems to be so focused on the customer, reorganising around product lines seems a bit strange," said Maribel Dolinov, a senior networking analyst for Forrester Research. The many acquisitions have also rubbed some customers the wrong way, because many feel that Cisco hasn't done a good job of integrating the products and technologies it has acquired, she said.

"I've spoken to a lot of service providers, and in my opinion they're disgruntled because (Cisco has) made a lot of acquisitions and the acquisitions didn't work," Dolinov said. Two pieces of networking gear from the same company might be expected to work together, but Cisco isn't just one company. Service providers have "the same multi-vendor problems, only with one vendor," she said.


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