Cisco Systems CEO Says His Company Is Ready to Take Advantage of Artificial Intelligence

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Chuck Robbins, CEO of Cisco Systems Inc., says the company missed a major growth opportunity 10 years ago, as cloud computing took off. But he insists this error will not happen again with artificial intelligence.

The networking equipment maker was an early pioneer in the Internet’s expansion, but it was slow to invest in the infrastructure that underpins the cloud. But the CEO, who joined the company in 1997 and took over as CEO in 2015, said the company would not miss another opportunity.

“With artificial intelligence, we are not in this situation. We are very well equipped,” Mr. Robbins said Tuesday in an interview with the Globe and Mail in Toronto.

Like many tech companies, Cisco CSCO-Q is banking on AI to power its software offerings and compete in an increasingly hot cybersecurity market, as the networking leader faces increased competition in cloud computing .

The shift to software is also part of a broader goal to create a more stable revenue model, contrasting with the more inconsistent model of networking equipment sales. Software products can be deployed more quickly and generate revenue that is “more predictable and a little less stressful for the business,” Mr. Robbins said. So far, the company earns 50 percent of its revenue from recurring sources.

AI products currently represent only a small fraction of the company’s total business, but Robbins expects this to evolve quickly.

Cisco is investing in what Mr. Robbins predicts will be a “decade of AI.” The company has built an order pipeline of about $3 billion for AI products, it told analysts in February.

To position itself for a greater focus on AI, Cisco laid off employees and made the largest acquisition in its history to strengthen its software offering.

Last quarter, the company laid off 5 percent of its workforce, or about 4,200 employees, and planned $800 million in severance payments that would likely show up in its third-quarter financial results, which it will report on May 14.

Cisco paid $28 billion in cash to acquire Splunk, a cybersecurity analytics platform that uses generative AI, to complement its cybersecurity offerings. The deal closed in March.

“Did we buy them just for growth? I would say no, first of all it’s an incredibly strategic fit. But they will help us as we grow,” Mr. Robbins said. He expects the acquisition to be accretive to the company’s cash flow in the first year and to its earnings per share in the second year.

The San Jose, California-based company, with a market capitalization of US$190 billion, employs approximately 2,200 people in Canada.

William Kerwin, an equity analyst at Morningstar, said the Splunk acquisition would help boost the company’s cybersecurity business, which he said has been “underperforming” in recent years. Investments in AI could help it win customers in the public cloud space, where it has lost market share to rivals such as Arista Networks, he said.

But he doubts these expansions justify a higher valuation at the moment. For that to happen, “we would need to see a significant improvement in Cisco’s ability to compete in the public cloud and AI environments and market share gains, which we do not expect,” he said. he declared.

In the meantime, the company remains a stable leader in enterprise networks and data centers, growing less than 10% and generating good profits, he said. “Even if these markets grow more slowly, they won’t go anywhere. »

However, in the short term, half of Cisco’s revenue from non-recurring sales is experiencing what Mr. Kerwin called a COVID-19 hangover.

During the pandemic, businesses purchased networking equipment to support their employees’ shift to remote work, and many are still digesting excess inventory. This has led to declining revenues in recent quarters, and analysts expect further contraction in revenues ahead.

In its latest results, the company cut its annual revenue estimates for this year from a high of $55 billion to a high of $52.5 billion. Mr. Robbins told analysts last quarter that the company expects the inventory problems to resolve themselves over the next year.

The lower expectations were also a response to an overall weaker economic climate and weak demand from telecom and cable operators.