Cisco FY 2011 Analyst Update

As Cisco's universe keeps expanding, we all have to work a little harder to keep pace. One of the many things Cisco does very well is host sessions to update the analyst community, and probably more than any other company, they truly walk the walk. As with all vendors, they have near overkill on webinar and phone briefings - wouldn't you, if you spent $3 billion on WebEx? They do plenty of live events - which are always great - and with the magic of another expensive technology - telepresence - we get our share of virtual events.

Today was the virtual variety, and I was one of only two analysts in Canada who got the telepresence treatment at Cisco's Canadian HQ here in downtown Toronto. I've done a few of these, and it's always a good experience. The meeting synched up 5 locations - Toronto, San Jose, London and a couple of sites in the Boston area. They're getting pretty good at this, and the session definitely feels immersive and life-like.

The session itself was led by Frank Calderoni, EVP/CFO, and he did a pretty good walkthrough of Cisco's overall plans and growth expectations. Some of this was familiar from what I saw at C-Scape this summer, but quite a bit was new. He spent a fair bit of time reviewing their VSE mantra - these are the principles that drive the company - Vision, Strategy and Execution. It all makes sense, and is built squarely around the notion that the network is everything - it's the platform that "enables new business models and organizational structures". Fair enough. Every company has its culture and guiding lights, and it's very clear from this what makes Cisco go.

They layered a few other things on this, namely DNO and CPAD. This is first nature if you work for Cisco, and I guess it will become second nature to us if we stay with the program. If you must know, DNO is Dynamic Networked Organization, and CPAD is Cisco Priority Assessment Dashboard. We didn't have acronyms like this during my MBA days - but we didn't have computers either (there really was a time like this!). I'm sure if I did a re-fresh, these would be the kinds of best practices concepts that we'd be learning about.

Back to why we're really here. So, as we heard at C-Scape, Cisco has become an innovation machine, and the 400+ new products over the past year is impressive by any standard. They also have $40 billion in cash, so there's nothing they can't buy if the mood struck. Not surprisingly, they're now moving to issue a dividend - that idle cash isn't exactly earning much interest and shareholders need to be kept happy.

Looking forward, the main message is the growth outlook. They expect a 12 - 17% annual growth rate over the next 3-5 years, and Frank did a good job breaking that down. Most of this will come from overall market growth, and the rest will come from three main places. First will be growth from increased share of wallet they gain from customers as their product mix expands. Second will be growth from emerging countries, which are on a different trajectory than the developed world. Finally, there will be some growth from what they call "market adjacencies" - these are new spaces/verticals that Cisco is growing into, such as healthcare and smart grid. All told, it's a pretty reasonable picture, and if they can sustain this level, it will be a real testament not just to what they sell to their customers, but more impressively, how the company itself operates and executes on its plans. When you look at how many sectors and companies in the U.S. are poorly run (with some getting bailouts), Cisco is in many ways a great model for doing things right. That really was the main takeaway for me.

To be fair, of course, we all know that a lot of Cisco's forays into new spaces is by design, and steps on a lot of toes. Traditional partners are now becoming competitors, and there's more of an us-or-them climate out there than in the past. That's not really Cisco's problem, as they simply need to find new growth opportunities to get beyond the core router/switching business that they've done such a great job saturating. While this core accounts for 50% of their business today, Frank explained how they see the other areas accounting for most of the future growth. Right now, all these areas fall under the "Advanced Technologies" bucket, which today is 24% of sales. This includes pretty much everything that isn't routers or switches - telepresence, video, data centers, mobility, etc. They're betting pretty heavily on these markets - and I would be too.

There's a lot to keep on top of here, and I'm glad I attended this update. This is one of those companies that you can fall behind on in a big way if you stop following them, especially since they are so global now. For better or worse, they're too big to ignore, but they're doing right by me in terms of keeping us in the loop.