Cisco (CSCO) has been through a number of ups and downs since its inception in 1984. John Chambers has been the company’s CEO since 1995. During these two decades, Chambers has seen multiple technology shifts that threatened to end Cisco’s leadership position in the networking market. However, Cisco has managed to overcome these threats through innovation.
Cisco continues to dominate the enterprise networking market. To give you an idea of this domination, see the below chart, which shows Cisco’s position in each of the enterprise networking segments as of 2012. Cisco achieved a market share of 54% across all these segments, with ethernet switches accounting for half of this spending, according to Synergy Research Group.
Cisco has also tried to leverage the growth of the integrated infrastructure market through the introduction of Unified Computing System (or UCS). UCS is a system that converges networking, storage, security, and applications into one infrastructure, providing-cost effective solutions to customers. Cisco has also benefited from its partnership with EMC (EMC) and VMware (VMW), named “VCE.” VCE offers enterprise IT solutions using technologies from VMware’s computing, Cisco’s networking, and EMC’s storage.
A look at the threats to Cisco
Currently, the two main threats that Cisco faces are the rapidly growing software-defined networking (or SDN) market and the growth of non-branded, white-box manufacturers. VMware (VMW) became an aggressive player in the SDN market after it acquired SDN vendor Nicira. Similarly, Juniper Networks (JNPR) acquired Contrail. However, Cisco tried to counter this threat through its own spin-in of Insieme.
Cisco has openly named white-box manufacturers as its biggest long-term threat. Facebook (FB) has been leading this initiative, as it launched its Open Compute Project, through which the company will buy hardware directly from white-box manufacturers. AT&T (T) and Verizon (VZ), which have traditionally provided a lot of business to Cisco and Juniper, have started planning to replace them with SDN solutions from white-box vendors. HP (HPQ), on the other hand, has smartly tried to convert this threat into strength by partnering with white-box manufacturers.
So Cisco will need to provide innovative solutions to counter these threats. To gain diversified exposure to Cisco, you can invest in the Technology SPDR (QQQ). QQQ invests about 3% of its holdings in Cisco.