Cisco consumer move afoot, leaders suggest

Cisco Systems Inc. executives hinted at major changes in the company's consumer strategy.

Cisco Systems executives hinted at major changes in the company's consumer strategy on Wednesday even as they voiced optimism about networking and the world economy.

The vendor bought Linksys to enter the home networking market in 2003 and recently has gone deeper into the consumer market by acquiring video infrastructure and set-top box maker Scientific-Atlanta. It's one of several new directions for Cisco, a large, 23-year-old company looking for continuing revenue growth.

Cisco's consumer business brings in about US$3.5 billion per year and is growing between 10 percent and 20 percent per year. That's compared with nearly US$35 billion in total revenue for the company's last fiscal year. But Chairman and CEO John Chambers believes consumer-oriented technologies such as social networking have a big future in enterprises and wants to bring new capabilities to homes, such as a less expensive version of Cisco's TelePresence conferencing system. Meanwhile, Microsoft and other IT vendors have designs on networked home entertainment, too.

The company will never be a majority player in consumer electronics by following its current path, Chambers said during a roundtable discussion with reporters on Wednesday. Cisco is used to being the dominant player in an industry, as its switching and routing businesses are juggernauts.

"One of the major decisions we face in the next twelve months ... is, are we going to continue along the current path ... and is there a path that gives up sustainable differentiation, especially given where the markets are going?" Chambers said. Collaboration, TelePresence and unified voice, text and video communications are among the technologies he expects to see in that arena.

One change that's likely to happen eventually is the demise of the Linksys brand, which Chambers has hinted at before but Cisco has hastened to downplay. It will take time, he noted.

"Linksys often has a higher brand recognition to the retail consumer, but over time you'll see us move under the whole Cisco brand," Chambers said. This is the reason Cisco streamlined its logo last year, he said. The company also wants to establish an "audio brand," a sound people associate with the company, he added.

The company has much to gain from better home broadband, and Cisco believes local government is a major hurdle in the U.S.

"I think the developing countries are out-executing the U.S. broadband buildout," including slashing their prices faster, Chambers said.

Before they can improve the key "last mile" of networks to homes and businesses in the U.S., service providers have to negotiate with local governments and work through complex regulations, said Charles Giancarlo, senior vice president and chief development officer. Clearing the path requires municipalities recognizing broadband as a priority similar to water and electricity, he said.

The executives downplayed municipal wireless initiatives in the wake of EarthLink's pullback from that industry. "Eventually, major service providers will get into the provisioning of broadband wireless and will follow a traditional service-provider model," Giancarlo said.

However, Chambers cautioned that others will step in if the carriers drag their feet on broadband. "When it isn't provided from the traditional way ... we as individual users or companies will look for other ways," Chambers said.

Giancarlo took a jab at Cisco's key competitor in unified communications when asked about Microsoft's Office Communications Server (OCS) 2007, launching in October. It may combine collaboration with voice features, but it probably won't be an effective full telephony system, he said.

"I expect it to be, frankly, somewhat of a 1.0 product in the real-time communications area," Giancarlo said. However, Cisco does have a number of projects with Microsoft to incorporate OCS features such as presence federation into Cisco's CallManager platform, he added.

As it wrapped up a daylong conference with financial analysts at its headquarters, Chambers said the future for Cisco looks bright. Most of Cisco's customers believe the world economy is in good shape and central banks will be able to handle possible credit problems caused by home foreclosures in the U.S., he said. Cisco expects service providers to keep up big spending on infrastructure, though the enterprise networking industry may be bumpy, he added.

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Stephen Lawson

IDG News Service

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