In eight days we are going to here Cisco’s full year FY11 and Q4 FY11 report. Prior to their Q3 FY11 results I wrote about how important Cisco’s report is for the technology industry. All the signs that CSCO had lost their way came true in the Q3 report. What should we expect next week? In the August report, CSCO is going to be the first technology company to tell us about July and they should guide FY12. If they do not guide for the full year FY12, that is a red flag. If they talk about visibility being limited, hard to define macro, and at this time only guide Q1 FY12, then red flags all around. Public sector is a big piece of Cisco’s business so we want to see this number and hear about trends.
A few other data points to look at (1) margins, is the company discounting to protect/gain share (2) commentary from John Chambers on spending dispositions from CEOs. I am looking for additional data points around slowing CAPEX which I posted here and here before JNPR confirmed with their results.
Here are two charts over the same period for JNPR and CSCO, which spans the market bottom in March 2009 till today. CSCO benefitted first from post credit crisis catch up spend, but JNPR had a longer duration uplift driven from positive product cycles against CSCO. As JNPR enters the market slowdown in 2011, do they enter into negative product cycles as CSCO refreshes product lines? CSCO issued five consecutive disappointing reports starting in May 2010. JNPR’s July 2011 report is really their second disappointing report. How many are left?
I still think the bigger problem for CSCO and JNPR is they are clinging to the past, while others are focused on what is appearing in the network. Network deployment strategies are changing. I described the past practices as “if you are selling networking equipment for CSCO, JNPR, BRCD, ALU, CIEN, etc, you go to work every day trying to perpetuate the belief that Moore’s Law rules. You go to work everyday and try to convince customers to extend the base of their networks horizontally to encompass more resources, vertically build the network up through the core and buy the most core capacity you can and hope the over subscription model works. When the core becomes congested or the access points slow down, come back to your vendor to buy more.”
Another description would be if you think network deployment strategies are changing and the inflection point of another long and sustained network build out occurs in the 1H of 2012, then you need to be pretty far down the product/solution development effort path. It is August 2011, which means it is really September because everyone is on vacation. If you want to start selling solutions and deploying solutions in the 1H of 2012, you need be aggressively moving on the plan of record (POR). You have about five months to get product development efforts complete enough to sell and position in your key accounts. What I am going to be looking for at industry conferences over the next few months is evidence that the legacy Moore’s Law companies have realized there is a change and they are now trying to skate to where the puck will be, but I suspect I will find no evidence of this and they will be focused on skating to where they want the puck to be. Game is on.
* It is all about the network stupid, because it is all about compute. *
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