Cisco CEO: We Have Disappointed Investors

SAN JOSE, Calif. ( TheStreet) -- In a surprise email to employees Monday, Cisco ( CSCO) CEO John Chambers vowed to turn his company around and acknowledged Cisco's execution problems.

"Today we face a simple truth: We have disappointed our investors and we have confused our employees," he wrote in the internal memo. "Bottom line, we have lost some of the credibility that is foundational to Cisco's success -- and we must earn it back."
Cisco CEO John Chambers has acknowledged the extent of the company's execution problems in a memo to employees.

Two consecutive quarters of weak outlook have raised big questions about Cisco's long-term strategy, and the company's stock is down more than 34% over the last 12 months.

Cisco reported that key areas of weakness include its consumer and switching businesses, which have negatively impacted margins.

In his note, Chambers highlighted the strength of Cisco's ongoing strategy of expanding into areas such as cloud technology and video, but admitted that the firm needs to execute much better.

"We have been slow to make decisions, we have had surprises where we should not, and we have lost the accountability that has been a hallmark of our ability to execute consistently for our customers and our shareholders," he said. "That is unacceptable."

Chambers, who is one of Silicon Valley's highest-profile CEOs, promised the coming of a number of unspecified changes.

He added that Cisco is not looking to fix parts of the company that are not broken, but hinted at possible upheaval. "We will take bold steps and we will make tough decisions," he wrote. "We will address with surgical precision what we need to fix in our portfolio."

The company has already started to overhaul its data center offerings, recently unveiling new switching products and a refresh of its UCS server technology.

But the company's announcement that it will soon offer its first-ever dividend has some tech watchers worried about Cisco's state of growth. Brian Marshall, an analyst at Gleacher & Company, believes that Cisco has become a victim of its own success.

"For many years, Cisco dominated its core markets, for example, enterprise switching/routing, and enjoyed robust market growth," he said in a note released Tuesday. "It is our view that Cisco has effectively saturated its real total available market (TAM) and is now forced to enter adjacent markets with increased competition and lower margin profiles."

Marshall also said that Cisco is also coming under pressure from smaller competitors in a variety of markets, namely Juniper ( JNPR), Check Point Software ( CHKP) and Riverbed ( RVBD).

--Written by James Rogers in New York.

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