Bloomberg’s Erik Schatzker and Paul Kedrosky analyzed Cisco Systems, Inc. (NASDAQ:CSCO) for Bloomberg TV. Schatzker pointed out how the company is being in a turnaround since 2009. During this period, Cisco has cut over 25.000 jobs. He said that Cisco Systems, Inc. (NASDAQ:CSCO) does not know where the growth is going to come from, even though they know there are opportunities in the cloud and software. He said the company simply does not have products to satisfy the demand.
Paul Kedrosky commented on the first sales decline in five years. Kedrosky, who holds a Ph.D. in the economics of technology, said that the marketplace has changed rapidly, and that it is causing the company’s margins to collapse. He explained that historically, Cisco Systems, Inc. (NASDAQ:CSCO) has been “a great vendor of big hardware boxes, running proprietary software, that can sell for quarter million dollars on up to well over million dollars”, and which came with “fantastic margins”. Now, the marketplace is changing away from that to what he called “networking apps, running on commodity hardware”. He said that Cisco Systems is trying to embrace this business, but that they hate it, because it is causing their margins to collapse.
Schatzker agrees with the analyst community in that the company is subject to macroeconomics headwinds, acknowledging Cisco Systems, Inc. (NASDAQ:CSCO)’s sharp revenue drop in the emerging markets, such as in Brazil, where the quarterly revenue drop was 13%, or in Russia and China, where it was 23%. However, he thinks Cisco could be “buying more things” and that “the trends fundamentally are favorable”, saying that video and mobile traffic are growing at good and extraordinary rates and that the business is migrating to the cloud, all the trends which help Apple Inc. (NASDAQ:AAPL), QUALCOMM, Inc. (NASDAQ:QCOM) and Facebook Inc (NASDAQ:FB) grow, but not Cisco Systems, Inc. (NASDAQ:CSCO), which makes him question for the reason why.
Kedrosky thinks that the main problem for Cisco Systems, Inc. (NASDAQ:CSCO) is not the general market conditions, but the fact that the market does not want an awful lot of what Cisco Systems is selling. He specified this with the recent example, when Facebook Inc (NASDAQ:FB) and Cisco Systems were locked up in the “battle”. He says that Cisco Systems, Inc. (NASDAQ:CSCO) wants people to buy million dollars boxes they can then install their software on and lock customers in. New customers like Facebook Inc (NASDAQ:FB) do not want it. They want lower margins, commodity hardware that they can swap in and out when they want it, and not when Cisco wants to push an upgrade path.