Cisco - Growth, Competition, Challenges, Options

After the Gartner report (They said, that when you bring 2nd vendor it won't hurt the operations and also reduce the opex by 15-60%) there is lot of hot discussions/exchanges between Cisco and competitors.

Competitors say "Good Enough" Networks, while Cisco rebuts the "Good Enough" aggressively in its blogs, webcasts and all sort of communications. Here

In my personal opinion, I'd still think the Core / Mission critical portion of Network to keep single vendor. Rest of the domains can be mixed/dual vendors. My biggest justification would be "Operational Reasons". After all machines/boxes can deliver what they can based on the "Human" who manages/configures them.

In my 12 years of experiences I can summarize almost 90% of outages are due to Human Error/Factor. It could be a wrong command, accidental modification or unknown config etc etc. We've all sorts of MOP (Method Of Procedures), SOP but still "human factor" is a critical aspect of operations.

For Cisco, if I do a quick SWOT,


Strengths:


* Networks = Cisco for most of the managers/sr mgmt. (Well known brand, established relations)
* Excellent channel partners & technology partners
* Well known/proven support
* Strong financial position & Excellent staff

Weakness:


* Giant and not fast to new changes
* Highly complex/complicated partner/support structure can put off SME's/Small enterprises
* Price.. (Too expensive for minor tasks)

Oppurunities


* Data Centers & new growth areas in IT area
* Mobile Networks. More and more networks are going all-IP. But this itself is a challenge too
* Build Cloud, Security in the network boxes

Threats:


* Intense competition from new entrants as well as IT vendors. Margin pressures (Juniper still can maintain 60% margins while Cisco margins are no where near where they're in 2000)
* Changing business models in Telco's/Large enterprises (Managed Services where operators are purchases based on Mbps/Transactions. Mobile giants like Ericsson, ALU, NSN are building their own high end routers and ALU is the 2nd player in the market  right now)
* Missing the reality at Ground and coming up with new products like UMI (Strictly not a threat but this is where they'll loose if they don't stop)

So in a nut shell , Cisco can still deliver and be what they used to be in 2000. But it takes a lot of effort from top mgmt, change of mind set and most importantly establishing direct relation with customer. Cisco is taking steps in the right direction (atleast now) and will not be surprised if they offer it's own managed services as part of advanced services arm.

Huawei Revenue increases 30% in 2010

Source: Huawei Annual Report

Key Points

• Revenue increased by 30%. Now stands at RMB 185 billion vs RMB 149 billion in 2009 (5 years back it was RMB 66 billion in 2006)
• Revenue from overseas is RMB 120.4 billion
• Net profit is RMB 23.75 billion (5 years back it was RMB 3.99 billion in 2006)
• Operating Margin ~ 15%. 

Look at the image right to see CAGR.

Operating margin is pretty healthy compared to the competetors in Mobile market. Ericsson gross margin is ~ 8% in 2009 and Nokia margin is ~ 34% but this is entire nokia. Not simply the infra business.

However this is pretty low compared to networking giants like Cisco. Cisco share price dropped in Feb because their margins missed the target (~62.4% vs analyst 63.3%).

I believe their strategy would be to focus on services now. They've presence over 140 countries and with cheap hardware/free upgrade strategy they've managed to get in to lot of networks. Now this is the right time for them to start 'milking'.

Huawei Strategy

Source: Caing.com

I've posted briefly on Huawei on their open letter to US & VHA decision. According to the post, a Huawei executive mentioned that they need to change their strategy and I fully agree with them.

"A product- or technology-centered approach to corporate strategy is correct in an era of insufficient supply,"  "But in an era of excess supply, (strategy) needs to have customer demand at its center."


Also, Huawei successfully transformed the mobile & telco industry. There was a day, when the vendors demand hefty prices for the equipment, software price, license charges & maintenance charges. I remember a classic example where we started negotiation with an European vendor for UAT Charges. After Huawei entered in to the market, the situation became more and more competitive and they effectively commoditized the hardware market.

Some key points from the report.

* Huawei plans to work with major customers to jointly develop "customer innovation centers," assigning staff members with expertise in various product lines and technical factors to work directly on-site with customers and so far they've setup in Vodafone, Telefonica & China Mobile.

* Increased focus on terminal. Revenues of the division grew 24 percent from 2009 to US$ 4.5 billion last year, and now comprise 16 percent of the company revenues.

* Cloud computing is another arena and they want to be in the top 3 players. And at a press conference, Huawei CEO Ren Zhengfei said his company's cloud platforms would "catch up with and surpass Cisco's in not too long a time."

Though I believe in Huawei abilities, my concern will be on their execution & their image.

Their biggest problem is execution and typically in communication & process. Most of the times either the communication breaks or mis-interpreted or totally missing. While the process seems to be very fluid and different project managers seems to follow different structures. This was evident in the mail from Telekom Malaysia CEO letter to Huawei Chairman in last year.

"Image" is another challenge for Huawei. They have to handle it and it's pretty sensitive...

Cisco drops UMI price

Cisco

Cisco dropped the price by 100 and now it costs $499 and subscription is $99/year. Originally the equipment price is $599 and subscription is $300/year. So that's a hefty drop. Still IMHO, the service is one of the worst from the tech giant. This will not be a success because

* I can use Skype and I don't sit in front of a TV for video calls. My laptop screen is big enough and I get pretty decent quality with Skype 5.

* There are few more alternatives like Google or Yahoo or old MSN. Did I mention all of them are FREE


* The idea lifecycle is too short. If people love to use TV for video calling we are in the midst of connecting our TV's to Internet. We've seen Samsung TV's that can support Skype natively and soon more and more TV's will be coming with Internet connectivity. Then it's a matter of time before someone write "APP" for TV. It could be Apple or Google.

* If I want to do it right now I can just plug in my Laptop to the TV via HDMI. So I don't need to spend a single $.


Overall it seems Cisco need to seriously think on what they want to do and should focus on what is their strength. In my view, their strength is Routers, Switches & other stuff which is more like Enterprises & Service Providers. Juniper recently announced their strategy and the VP made it clear that their profit margins will remain around 68% for the next couple of years. Its not the same case for Cisco. Cisco margins are squeezed and we can see that in their Q3.

Please, no more UMI or FLIP. While I appreciate your efforts to create/capture Consumer segment you should try to understand what these folks really want.

BCG Publishes Top performers from Technology, Media & Telecom

Source: BCG

Boston Consulting Group (BCG) published a white paper "Swimming Against the Tide" which summarizes how well companies performed in the past few years and how organizations can proposer in the new economic environment. They focussed on Technology, media & Telecom sector.

Good to find,

* Infosys(3), TCS(6) & Wipro(10) are the three Indian companies out of top ten Technology organizations. Apple is the no.1 followed by mediatek.

* No Indian company in Media business. Tencent is the no.1 and Google ranked as no.4

* Bharti (3) is the only Telecom company. American Movil and China Mobile are the no 1 & 2.

They've shared the five strategic options for TELCO players in the report too. Personally I didn't liked the summary as it's in the same league of 'dumb networks' kind of stuff. What I believe is Telecom Networks or ISP's are just like logistic providers in the e-world. They need to ensure proper delivery and they may try to add some value added services but not like trying to open the parcel and meddle with the content or generate income by meddling with the B-party.
Anyway it's a good read for strategy students & industry folks.

Singapore telecoms - challenges/priorities for the CEO's

This morning I saw the article in Today's news paper "Calling loyal customers - telco's biggest challenge". In summary the strategic options of the three local telco's are,

* SingTel - be a multimedia player (betting on content, apps and local/customized services)
* StarHub - betting on NG-NBN. Not given much info but I guess the focus right now is still in bundling (Hubbing) strategy which is one of the best success stories in the market.
* M1 - Going to be a triple play player. In essence follow bundling option.

In my humble opinion, the options are not very strategic but more tactical. When all players in the market opt for similar plans and without a tangible or intangible differentiation among themselves the outcome would be more likely on the 'cost differentiation'. I am sure none of the stakeholders would like to see eroding margins and a 'price war' in the small local market.

I believe there is no silver bullet for the challenges, but if I've a place in the board ;), I'd love to hear what are the strategies/priorities for next few years. While there is substantial difference between the three operators, the commonality is mobile (which is contributing the most to the bottom line), and I'd say below are the top 8 challenges/priorities for the CEO's,

1. Google, Apple, Facebook bypassing Ops from value chain
2. Consistent Strategy/goals with organization values
3. Excellence in Execution
4. Customer Loyalty/Retention
5. Stimulating Innovation/Creativity/Enabling Entrepreneurship
6. Maintain Profit
7. Evaluate and prepare funding for Future technologies (LTE, 4G etc)
8. Recruit/retain skilled workforce/management

1. Google, Apple, Facebook bypassing Ops from value chain.

With more and more innovative services coming from these giants, I started to believe that one day the business model as we know today will shift radically. We've seen how Apple changed the game with their iPhone and I strongly believe this is only the beginning.

* Apple has facetime which is developed based on existing open standards but the key is execution and packaging. Apple managed to succeed where TELCO's failed with "Video Call". I don't remember I ever used 3G video call before though it's more closely integrated with my hand phone. Apple can enable the 'voice' addition to the Facetime and they have plans to release it to the public. That's when things will be more interesting as we can expect third party app's integrating with Windows Laptops & Potentially android :). Result will be less voice minutes in mobile networks (assuming people will use VoIP with SIP be it video or without video)

* E-sim, softsim coming in the next few releases of iPhone (More details in my previous post here)

* Android launching with NFC & trying to get a pie from Payment market. This will seriously impact the hopes of operators "m-commerce" services. If I've a choice to buy using Google checkout & credit card I'd definitely go for it rather than asking my mobile operator to charge as part of my monthly bill. As of now I've problems understanding the operator bill with unnecessary details and missing necessary details.

2. Consistent Strategy/goals with organization values

3. Excellence in Execution

No need to explain but we've seen with MIO TV, Starhub new billing system & M1 fiber plans. All our telco's seems to improve a lot on the execution. I am sure they've wonderful management, skilled engineers & great marketing folks but somehow all these different parties couldn't do what Apple, Facebook or Google did.

4. Customer Loyalty/Retention

Honestly this is one area where our operators are doing a good job in 'numbers' perspective but failed to meet the expectations due to various reasons. The first touch point which is the shops itself needs lots of improvement. Today's Customer is technically savvy and they knows the technologies very well. However our service departments are relatively under developed and still consists of mostly entry level service staff. Thanks to outsourcing(if it's done proper ways I don't see an issue but most of the times service providers outsource because it's CHEAP), sometimes the officer doesn't even understand what we are talking about. Need lot of improvement overall in this aspect

5. Stimulating Innovation/Creativity/Enabling Entrepreneurship
Some how we end up became the followers. We've Telephone just after four years of it's invention and our incumbent boasts over 125 years of history and one of the largest telco in the world. However when we look in to the contribution portion there is hardly anything to be proud of. Is it because organizations tend to focus on $ or other reasons. I don't know but I wish our telco's too cultivate an environment where we can show to the world that we've got talent. Singapore being one of the most advanced nation in terms of infra, coupled with savvy customers can be an unique nation which can be used as a technology hub. We can quickly introduce something with relatively low investment or do advanced technology trials. This can be bring lot of 'value add' to the nation as well as company. IP plays a critical role in knowledge society.

6. Maintain Profit

Nil. I've nothing much to say here as the leaders knows very much about this.

7. Evaluate and prepare funding for Future technologies (LTE, 4G etc)

Same as in item no.5, but this poses a different challenge to the CEO's. They need to invest lots of money to buy 'spectrum', invest in networks and people. But the bottom line of LTE or 4G is it offers higher speed to end customers with a relatively cheap prices (i.e. the cost to serve 10Mbps is cheaper with the LTE

8. Recruit/retain skilled workforce/management

I remember sometime back SIA used to be preferred employer and even people like to join technology firms. but today the focus seems to be going to Financial sector which means the best of breed is no longer going to be in technology sector anymore. Only Philips is in the top 10 and SingTel managed to get 85th position and the only telco in top 100(Link Here). If Operator need to head on or be in a respectable position at negotiation table they need to have best brains working with them.

In conclusion, the road ahead going to be very bumpy and only the toughest and smartest will reap the benefits while the rest will remain as the 'dumb pipes' providers. http://singapores100.com/2010-rankings/