Cisco appears to have continued its recovery following a painful restructuring. Sales are up and setting records, earnings beat the consensus of analysts, and Cisco’s outlook for the coming quarter is positive, too. Cisco’s even reached a point where it’s at least close to fitting into its old skinny jeans. What a difference a year makes. Last year it was all about gloom and doom and some irritable investors were calling for Chambers to lose his job.

Since then the company has undergone a painful but necessary restructuring, shed thousands of jobs, shut down marginal business units and refocused on its core businesses, and as yesterday’s quarterly earnings report proved, the results are not only starting to show, but starting to stick.

So is the work done? Definitely not. Yes, Cisco is showing some return to its strengths, but there’s still a long way to go. We talked about that, the troubles Cisco’s competitors are facing, his long-held view that companies like Cisco should get a tax holiday to repatriate their cash held outside the U.S. and many other things.

Also Chambers, remembering that I dedicated “How Ya Like Me Now” to Cisco last quarter as it turned the corner on its troubles, asked me what song I might use to characterize its results this quarter. Taking inspiration from the headline of my first story and from his cautiously optimistic tone, I settled on “It’s Getting Better All The Time,” the Beatles track, performed by Paul McCartney and embedded after the Q&A. Enjoy.

AllThingsD: John, I don’t know if you saw the headline I wrote earlier, but I said you fit into your skinny jeans again. Is that fair?

John Chambers: [Laughs] I think it’s fair. We were up about four or five inches there so I think we have an inch or two to go, but we’re getting close.

So let me ask about the quarter. It looks like a solid quarter where a lot of the troubles were starting to get behind you. In broad brush strokes, where were Cisco’s strengths? I know some of your competitors were having their own troubles, but where were you strong in particular?

The strengths were that we appear to be executing on the market transitions that are going on, and we appear to be reinventing ourselves, not just in terms of how we control our costs, but in terms of the productivity we’re getting out of our employees. So if you look at the major transitions going on in the industry from an economic point of view, to how customers buy, to where the high tech industry is going, which I would argue is all connected to intelligent networks, that all appears to be playing out as we had hoped. The other transitions that you think about, like data centers and the cloud, we saw 90 percent growth in an industry that is growing at best in the teens. Our ability to move in collaboration, where we grew 10 percent though I think we could do better — it remained solid for us. In video with set-top boxes up 23 percent to new video technologies growing well and seeing improvement in the margins. There are things we need to do to reinvent Cisco. I think I said this at your own conference a decade ago [Chambers spoke at D5 in 2007, but that is not where he made this comment. -Ed.] that voice will be free. It’s almost there. You could see the trend, and what it meant is that once voice would become a smaller part of the network load, that would be given away in order to make way for the video and the entertainment. The same trends are taking place all over again at multiple speeds and multiple gears, which if we’re right, they all play together. Everything from mobility to cloud to the intelligent network, to wireless to security, to video being pervasive, all of those are coming together at tremendous speed. And we’re pulling them all together pretty well for our customers. Now, this is just the beginning if we execute right, and we have plenty of hurdles in front of us, but this may be the voice-will-be-free trend times 10 in terms of the impact of the transitions going on. We appear to have managed them well; we did what we said we would do, turned in record earnings and record revenues, and earnings per share were up 48 percent. We’ve realigned ourselves and reinvented the company, which I think you have to do every five years. Sometimes it takes a crisis to reinvent. … It’s a journey and we’re just getting started.

What’s the number one hurdle that you want to get over this year, that’s in front of you right now and keeping you up at night?

I want to build deeply into our capabilities, a continued focus on gross margins and effectiveness, from product design to sales all integrated together. You probably know this, but we’re the only company who’s anywhere near this profitable with $45 billion in sales with open standards. It isn’t a mainframe business where everything is proprietary or like in Apple’s situation where it’s a wonderful company but it has an architecture. We do it entirely with open IP, so we can be challenged by a 10-person start-up or a by the biggest giants like Dell or IBM or Hewlett-Packard to come at us. With this type of margin but so low a barrier to entry, we’re doing relatively well. But we still have to reinvent ourselves at a faster pace. We have to do what I call the basic blocking and tackling to participate in the new capitalism that we’re heading into. That’s the attention to gross margins, getting the market transitions right, tying the products together so you can get the price premium on them. But what really keeps me up at night this last year was the realization that this has to be constant reinvention. Average is over. An average high-tech company is headed down. Those above-average companies are going to head down in 3 to 5 years. If as a company you can’t reinvent yourself every 3 to 5 years, you have a problem coming at you.

Does that then imply that Cisco had become complacent or even average? It was and is the biggest networking player, but did Cisco lose its way and try to do too much?

Well, I could give you a long list of things we have to do better. We’re a healthily paranoid company so we always have things we could do better. I do think we were fat. Four to five inches, not just one or two. We’re not back in our skinny jeans yet, as you put it, but we’re within an inch or so of getting there. We missed market transitions at the speed at which they occurred. We should have seen the drop-off in public spending coming at us sooner. Everyone else has still run off the turn, even though they saw what happened to us two to four quarters ago. We should have seen it sooner and reinvented ourselves before it hit us, and made the turn much more effectively, and I’m committed to doing that, and the leadership team is, too. It would have been easy to just cut a billion dollars in expenses, reorganize sales and how customers buy. We realized that gross margins can deteriorate not just because of what competitors do but what we do to ourselves, like what we did on switching. We should have been smarter there.

On the conference call you mentioned the possibility of getting back into the mergers and acquisitions game. Any hints on where you might go or whom you might buy?

I think it’s a fair question. Part of the reason we said that was to explain why we’re building up cash in the U.S. Part of it was for share buybacks because the price was attractive. A lot of people don’t realize that we use M&A deals to gain leadership. We were a routing company, we acquired three switching companies. We were an enterprise and commercial company, we acquired a service provider company in Stratacom. If you look at where it’s going to be, it’s probably in data center, collaboration and video, and combining those with security, bring your own device and mobility. A large part has to do with our government allowing us to bring money back to our country.

That’s always been a big issue of yours. You made some comments about it on the conference call as well. Care to elaborate?

I think that it’s going to happen in the next presidential administration whether the president is re-elected or someone else is. I’ve been disappointed that we haven’t been able to get our message out about this more effectively. Ironically, I was in Europe, the government leaders there look you right in the eye and ask what they need to do to bring jobs to their country and keep the ones they have. They are partnering with business. I think we’re following Europe in the wrong way and following more of what they did to get them in trouble in the first place.

There’s a bit of a disconnect, however, to anyone who sees on one hand a company that wants to bring cash back in a tax-advantageous manner in the name of creating jobs, while the same company just fired so many people in the restructuring. Can you connect those dots for the person who sees the apparent logical disconnect? If it’s about jobs, then why are you firing people in the first place? If you were having lunch with President Obama or any other political leader, they might be confused, so how do you explain it?

They’re related. The first thing you’ve got to do when you hit bumps in the market is find out how much of the damage was self-inflicted and how much was the result of the conditions of the market. It would be a cop-out to say it was all the general market. We had to look at what we were doing internally. Every government leader in the world who’s adding to government payrolls and adding government debt is going in the wrong direction. We have to use technology to deliver services better. You do see most government leaders saying they want to get their own houses in order. The second thing they do is look at ways to generate private sector jobs. I’m a strong Republican, but I think President Clinton got it right with business and knocked the ball out of the park. He partnered with business, he was critical where appropriate, but in six years he generated 22 million jobs, grew GDP on average by 4 percent per year, and he was America’s champion on the Internet. I think that’s a more practical example. He grew private sector employment versus government employment by a ratio of 9 to 1, and created a positive climate for business, and when business got out of line he’d whack ’em. I think it would be a major mistake not to let companies repatriate their cash because whoever is in the Oval Office next year is going to want to get private sector jobs growing again, and there really aren’t very many levers left to pull. We’ve never had this slow a recovery after this deep a recession.
–

Getting Better – Paul McCartney

“We are executing well on our three-year plan to drive earnings faster than revenue. Our operational focus continues to yield positive results — we hit our billion dollar expense reduction a quarter early — and our ongoing innovation enables our customers to solve their critical business needs,” was how CEO John Chambers put it in a statement.

I’m listening to the conference call, and will have a few more highlights. First there’s the guidance for the quarter ahead. Chambers and CFO Frank Calderoni said the company expects revenue to grow in a range between 5 percent and 7 percent year on year, which works out to sales of $11.4 billion to $11.6 billion, which beats the current consensus outlook. Calderoni also said Cisco expects to earn 45 cents to 47 cents a share, the higher of which is two cents higher than the consensus estimate of analysts. Expect some upgrades from analysts tomorrow on that news alone. Gross margins, Calderoni said, are expected to come in between 61.5 percent and 62 percent, which is also a bit higher than the 61.2 percent margin seen this quarter.

During his prepared comments, Chambers also said that while Cisco has been holding back on doing mergers and acquisitions, that may be coming to an end. “We will be more active with mergers and acquisitions in the quarters and years to come,” he said.

Another interesting stat: Chambers said productivity per employee rose 20 percent to $724,000. That tends to happen when the overall number of employees drops — which it has by about 6,500 over the last six months or so. But it’s also an indication that Cisco had some serious operational fat to trim.

The profit was better than the 43 cents that analysts had forecast, while sales were about $200 million better than the $11.23 billion consensus estimate. Cisco shares, which traded higher by nearly 1 percent during the regular session, rose by almost 4 percent to $21.07 by 4:10 pm ET in after-hours trading.

The earnings report also marks another step in the turnaround that CEO John Chambers ordered last year as the company’s outlook started to fall short and its growth prospects sputtered.

Cisco’s press release is below, and its conference call with analysts begins shortly, which is where we’ll hear the crucial forward guidance. I’ll add more to the post as Cisco adds color to the results during the call.

Cisco Reports Second Quarter Earnings

Increases Quarterly Cash Dividend to $0.08 per Common Share

SAN JOSE, CA–(Marketwire -02/08/12)- Cisco (NASDAQ: CSCO – News)

Q2 Net Sales: $11.5 billion (increase of 11% year over year)
Q2 Net Income: $2.2 billion GAAP; $2.6 billion non-GAAP
Q2 Earnings per Share: $0.40 GAAP (increase of 48% year over year); $0.47 non-GAAP (increase of 27% year over year)

Cisco, the worldwide leader in networking that transforms how people connect, communicate and collaborate, today reported its second quarter results for the period ended January 28, 2012. Cisco reported second quarter net sales of $11.5 billion, net income on a generally accepted accounting principles (GAAP) basis of $2.2 billion or $0.40 per share, and non-GAAP net income of $2.6 billion or $0.47 per share.

“We delivered strong performance this quarter with record revenue and earnings per share,” said John Chambers, Cisco chairman and CEO. “We are executing well on our three-year plan to drive earnings faster than revenue. Our operational focus continues to yield positive results — we hit our billion dollar expense reduction a quarter early — and our ongoing innovation enables our customers to solve their critical business needs. You will continue to see a focused and aggressive Cisco that is helping our customers use intelligent networks to transform their businesses.”

GAAP Results

Q2 2012 Q2 2011 Vs. Q2 2011
————– ————– ———–
Net Sales $ 11.5 billion $ 10.4 billion 10.8 %
Net Income $ 2.2 billion $ 1.5 billion 43.5 %
Earnings per Share $ 0.40 $ 0.27 48.1 %

Non-GAAP Results

Q2 2012 Q2 2011 Vs. Q2 2011
————– ————– ———–
Net Income $ 2.6 billion $ 2.1 billion 23.3 %
Earnings per Share $ 0.47 $ 0.37 27.0 %

Net sales for the first six months of fiscal 2012 were $22.8 billion, compared with $21.2 billion for the first six months of fiscal 2011. Net income for the first six months of fiscal 2012, on a GAAP basis, was $4.0 billion or $0.73 per share, compared with $3.5 billion or $0.61 per share for the first six months of fiscal 2011. Non-GAAP net income for the first six months of fiscal 2012 was $4.9 billion or $0.90 per share, compared with $4.5 billion or $0.80 per share for the first six months of fiscal 2011.

A reconciliation between net income on a GAAP basis and non-GAAP net income is provided in the table on page 5.

Cisco will discuss second quarter results and business outlook on a conference call and webcast at 1:30 p.m. Pacific Time today. Call information and related charts are available at http://investor.cisco.com.

Cisco Increases Quarterly Cash Dividend

Cisco also announced that on February 7, 2012 its Board of Directors declared a quarterly dividend of $0.08 per common share, a two-cent increase over the previous quarter’s dividend, to be paid on April 25, 2012 to all shareholders of record as of the close of business on April 5, 2012. Future dividends will be subject to Board approval.

“We’ve consistently reiterated our commitment to using the cash generated in our business to drive shareholder value, and to do so with a combination of stock repurchases, dividends, M&A and R&D,” said Frank Calderoni, Cisco chief financial officer. “This quarter, with the strength of our business, we’re pleased to announce an increase in our dividend. Going forward, we will continue to focus on driving the greatest return for our investors.”

Other Financial Highlights

Cash flows from operations were $3.1 billion for the second quarter of fiscal 2012, compared with $2.3 billion for the first quarter of fiscal 2012, and compared with $2.6 billion for the second quarter of fiscal 2011.
Cash and cash equivalents and investments were $46.7 billion at the end of the second quarter of fiscal 2012, compared with $44.4 billion at the end of the first quarter of fiscal 2012, and compared with $44.6 billion at the end of fiscal 2011.
During the second quarter of fiscal 2012, Cisco repurchased 26 million shares of common stock under the stock repurchase program at an average price of $17.84 per share for an aggregate purchase price of $466 million. As of January 28, 2012, Cisco had repurchased and retired 3.6 billion shares of Cisco common stock at an average price of $20.47 per share for an aggregate purchase price of approximately $73.8 billion since the inception of the stock repurchase program. The remaining authorized amount for stock repurchases under this program is approximately $8.2 billion with no termination date. During the second quarter of fiscal 2012, Cisco also paid a cash dividend of $0.06, or $322 million.
Days sales outstanding in accounts receivable (DSO) at the end of the second quarter of fiscal 2012 were 31 days, compared with 35 days at the end of the first quarter of fiscal 2012, and compared with 40 days at the end of the second quarter of fiscal 2011.
Inventory turns on a GAAP basis were 11.1 in the second quarter of fiscal 2012, compared with 11.2 in the first quarter of fiscal 2012, and compared with 10.6 in the second quarter of fiscal 2011. Non-GAAP inventory turns were 10.8 in the second quarter of fiscal 2012, compared with 10.9 in the first quarter of fiscal 2012, and compared with 10.0 in the second quarter of fiscal 2011.

Select Global Business Highlights

Cisco completed its acquisition of privately-held BNI Video, which supplies service providers with two major video products that offer video back-office and content delivery network (CDN) analytic capabilities.
Cisco released its seventh annual Corporate Social Responsibility report which details how Cisco applies its expertise, technology and partnership strategies to address environmental, social and governance issues.

Cisco Innovation

Cisco announced that in just over two years its new Cisco Unified Computing System™ (UCS), which integrates computing, networking, management and virtualization, has captured the attention of data center managers and CIOs alike — to date, over 10,000 customers worldwide, including 3,000 in Europe, have deployed Cisco UCS.
Cisco introduced Cisco CloudVerse®, a framework that combines the foundational elements required to enable organizations to build, manage and connect public, private and hybrid clouds.
Cisco announced that Cisco Videoscape™ will now help enable new “video in the cloud” services that can drive new revenue streams for service providers and exciting new video entertainment experiences for consumers.
Cisco announced the addition of new solutions and services to its Connected Grid portfolio that will help utilities modernize the electric grid with built-in flexibility, security and interoperability enabled by the power of the network. Cisco’s new technology architecture, solutions and related services address key utility concerns around cost, reliability and scalability in their communications infrastructures.
Cisco announced a series of advancements that can give midsize businesses access to “enterprise-grade” IP phone systems with integrated collaboration capabilities without taxing already constrained IT and financial resources.

Select Customer Announcements

Verizon will extend its next-generation 100G capabilities in select U.S. markets, including Atlanta, Boston, Chicago, Dallas, Los Angeles, New York and Seattle, by deploying Cisco’s CRS-3 Carrier Routing System platform to terminate high-speed connections closer to the “edge” — the part of the network nearer to the customer’s network facilities.
Canada’s Woodstock Hospital has chosen a Cisco Medical-Grade Network for its brand new facility, providing a highly resilient, innovative and economical solution to improving health services and advancing patient care.
Cisco Cius™ was part of the Petrobras Gas Station of the Future technology portfolio launched by Petrobras Distribuidora, a subsidiary of Petrobras, and Intel, in Brazil.
Cisco announced that Warsaw’s brand new National Stadium is implementing the Cisco Connected Stadium solution. National Stadium in Poland is one of the venues for next year’s UEFA EURO 2012™ European Football Championship.
MEED Networks in Nigeria is set to deploy a Cisco Borderless Network Architecture at Ahmadu Bello University, the largest university in Nigeria and second largest in Africa.
Telstra and Cisco have enabled members of the Australian Government to meet face-to-face without the need for costly travel, following the successful deployment of one of the largest national telepresence networks in the country, the Australian Government’s National TelePresence System.
Cisco announced that Dutch service provider KPN has chosen the Cisco CRS-3 multi-chassis Carrier Routing System, which will be deployed at the heart of KPN’s Internet peering network.
Cisco and Swisscom are equipping 200 pharmacies in Switzerland with Cisco TelePresence® video communication systems. Launched recently under the name netCare, this two-year pilot project will help enable the provision of advanced telemedicine services.

Cisco’s recent history is peppered with instances of missed quarters that deliver on results but offer poor outlook. After a restructuring that saw the company cut 6,500 jobs, kill its consumer-oriented products, sell off its Mexico-based manufacturing operations to China’s Foxconn and recalibrate its long-term growth expectations with the financial community, the pressure is on Cisco and its CEO John Chambers to show that the changes were not only for the better, but that they’re taking hold.

Cisco is supposedly back in fighting trim. A new ad campaign, coupled with aggressive strategies in new market areas like cloud computing, coupled with a pivot away from unsuccessful consumer products, suggest that the company is back on track. But can the apparent progress made last quarter stick?

Analysts are expecting a profit of 43 cents a share on sales of $11.23 billion. Analyst Sanjiv Wadhwani of Stifel Nicolaus expects the results to come in slightly better than that. Writing in a research note to clients last week, he checked Cisco’s channel and found that sales of switching products, weak in recent quarters, appears on track to better than expected. Router sales appeared stronger versus competitors, specifically Juniper, despite a relatively weak environment for IT spending overall.

Geographically, spending in the U.S. was steady and, surprisingly, so was spending in Europe, except for in southern European countries like Greece and Italy, were the sovereign debt crisis has been so acute.

Weaknesses will be apparent, Wadhwani says, in sales of set-top boxes, suffering, in part, because of the shortage of hard drives as a result of the flooding in Thailand. Gross margins, a key metric of profitability, may be down slightly in part of a large sale of aggressively priced routers to China. One bright spot of note: During the quarter, Cisco announced that its Unified Computing System — its cloud computing hardware offering — has reached 10,000 customers and is, roughly, a $1 billion business.

Wadhwani says he expects Chambers to set a positive tone in his guidance. “As far as orders are concerned, feedback has been generally positive and consequently we expect the company to provide solid guidance for April. We also expect a positive tone from CEO John Chambers with optimism about the U.S. leading the world in an economic recovery.” That would be a nice change from the depressing results announced a year ago.

The spot depicts a batch of assembly-line robots busily building cars, as an instrumental version of the 1979 Gary Numan hit “Cars” plays happily. All is well until one of the robots experiences trouble and complains to the others, “I’m broken.” No problem, one of the others says, fixes his stricken comrade, and all is again well. Cue the voice-over, saying something about assembly lines that repair themselves. Then cue the corporate logo, aaaand … out.

The spot — which has exactly 100 percent less Ellen Page than the last series of Cisco TV ads — is part of a significant new advertising offensive that Cisco is launching today on television, in print and online. The TV spots will appear during the NCAA basketball games, the National Hockey League’s All-Star Skills Competition, and on CNBC and other business-oriented programming. However, it notably won’t appear during the Super Bowl.

Those robots will be seen again, disassembling and reassembling sections of certain Web sites as part of a series of “site takeovers,” including CNBC and The Street, among others.

The print portion is a six-page “manifesto” that explains ways that Cisco’s “Human Network” plays important and unexpected roles at banking companies and companies that sell chutney, and helps the National Basketball Association push its video around the world. The manifesto will appear in The Wall Street Journal (which, like this Web site, is owned by News Corp.), the Economist and the New York Times.

There will also be a social campaign via LinkedIn that goes after 140,000 C-level executives registered on that network. It will be the first time that embedded video will be used in a LinkedIn campaign. More TV ads will come later this year, as will localized versions of the campaign for international markets.

Last week, I talked with Blair Christie, Cisco’s chief marketing officer, who said that the manifesto in particular is about using the voice of its customers to show how Cisco’s technology can help companies do things they couldn’t do before. Of course, the point they’re supposed to get is that a Cisco intelligent network is what’s enabling them to do that.

Christie says it’s all part of Cisco’s effort to simplify how it communicates about itself. There’s no more muddling of the message. There’s no more consumer division to eat into the perception that Cisco is anything but an enterprise- and service-provider-focused networking company, so no more need for cute ads that overdo awkward jokes about teleconferencing, or showing a giggly twentysomething woman in a virtual fitting room. Cisco is now about transforming how companies do what they do, either by doing it better, or seeing new opportunities. It’s a big message, and a tricky one to get across in 30 seconds during a football game.

I asked Christie about the state of Cisco’s brand before this campaign, and whether or not there were any perceived weaknesses, given its recent troubles, that this ad effort is meant to shore up. “There was actually a lot that was right with our brand,” she told me. “The opportunity we had was clear and simple. Our customer voice is our talent, and that’s what we’re showing, and it’s consistent with our strategy. We use our customers as a test bed, so why not use them as a reflection of our brand? It wasn’t rocket science. But it was the customer voice that was missing.”

Simplifying and streamlining are themes that Cisco is certainly acquainted with of late. It has been doing a lot of those, and indeed, even shrinking itself as part of a broad-based restructuring. The results of that effort are starting to show up in Cisco’s results.

Time will tell if this new advertising campaign will help Cisco effectively reintroduce itself to its core customers; fight off strong competitive thrusts from the likes of Hewlett-Packard, whose networking division marketed itself aggressively against Cisco in 2010; and perhaps press a perceived advantage against Juniper Networks, which has been having its own problems.

What I find notable, or maybe missing from the campaign, are recognizable names of customers doing innovative things. Yes, there’s the NBA, but in the print manifesto, who’s the bank that’s using Cisco’s video TelePresence to interact with customers? Who’s the small chutney company that turned “browsers into buyers”? And who’s the car company with such smart assembly-line robots? It’s a good message that, to my mind, could be made a lot more effective with more specific examples.

And while I grant it’s often difficult to get customers to agree to be named in ads like this — you could almost hear CEO John Chambers’s frustration about not being allowed to name a certain banking customer, about which he was obviously proud, on a recent conference call — the biggest networking company in the world shouldn’t have such a problem. It should be able to brag that this or that household-name bank is an enthusiastic Cisco customer, and that Cisco networks powered the manufacturing of that popular car everyone is talking about right now. That would add some real oomph, and really serve to remind potential customers that Cisco is still, despite its recent missteps, the networking world’s alpha dog.

Anyhow, my critique aside, here’s the robots spot. Enjoy:

Cisco Robots from Arik Hesseldahl on Vimeo.

Today, Cisco finally laid out a cohesive strategy to become a significant player in the cloud business. It announced an offering called CloudVerse that combines three big elements — its Unified Data Center, Cloud Intelligent Network and Cloud Applications — into a big portfolio aimed at companies building out their data centers.

The idea is basically this: If you want to build a cloud, either to resell cloud services of some kind or for your company’s own internal operations, Cisco wants to talk to you. Under the CloudVerse tent are a bunch of offerings including computing, networking, collaboration and software for automating and managing it all.

Cisco named a handful of companies who are already CloudVerse customers, and a few will catch your eye, because they’re big. One is Terremark, the Web-hosting and cloud-services outfit that telecom giant Verizon acquired earlier this year. Others include Telecom Italia, Telefonica Spain and Fujitsu.

Naturally, Cisco is hoping to use its position as the supplier of choice for networking gear as a springboard into selling more stuff inside the data center, and it already has key relationships with many a corporate CIO. A key part of its go-to-market strategy will be convincing those CIOs that it has something unique to offer.

Here’s one such thing: The Network Positioning System and Cloud-to-Cloud connected. Imagine you have a sprawling set of far-flung data centers around the globe. When one center gets starts to get close to reaching its capacity load — maybe it’s Cyber Monday or something — Cisco’s NPS technology allows the routers in one data center to start automatically looking around for capacity elsewhere, to keep things humming along.

There’s a lot more detail to it, but it’s worth pointing out that, as a percentage of Cisco’s business, the cloud business isn’t huge. On an earnings conference call with analysts last month, CEO John Chambers said that the Unified Computing System that forms the backbone of its server business had recorded 116 percent revenue growth year over year; even with that, it’s on run-rate to being a $1 billion annualized business. If it hits that mark in Cisco’s fiscal year 2012, which ends in July, it will amount to about 2 percent of estimated annual sales.

But Cisco expects the cloud business opportunity to grow like crazy. Last week, it issued something called the Cisco Cloud Index, which estimates that more than half of all computing workloads will be running in data centers by 2014, and that the daily traffic conducted on cloud services of various types will amount to 1.6 zettabytes per year. My math may be off a bit, but compare it to the scale of your average hard drive — a zettabyte amounts to a billion terabytes, or a trillion gigabytes. Cisco describes it as enough data to amount to four days of high-quality video streaming for every person on Earth.

It’s a serious opportunity, no doubt. The question is whether or not Cisco can exploit it in a manner that moves the needle. Doing so is an important part of the strategy that Chambers set forth as part of the epic restructuring that has been going on at Cisco since last year. Investors seem to like what they see, as Cisco shares are trading at $18.80 today, which is up 41 percent from a recent 52-week low. As turnarounds go, it does look like progress.

By February, the temporary turbulence appeared more permanent. Chambers said that Cisco had entered a “period of transition.” Some transition. First came the unceremonious execution of the Flip videocamera business, a decision which has never — even months later — been fully explained.

Then came the job cuts — 6,500 from Cisco itself; another 5,000 and change were transferred to the Taiwanese manufacturing giant Foxconn. Cisco is now a much lighter operation, yet still on its way to cutting $1 billion in operating expenses.

The results so far speak for themselves. Cisco’s results packed a serious wallop to the expectations of Wall Street analysts, who are falling all over themselves today to upgrade Cisco’s shares.

“An underappreciated turnaround story,” was the phrase Shaw Wu of Sterne Agee chose to describe Cisco in a note to clients today. “Showing tangible evidence that execution has improved,” wrote Brian Marshall for ISI Group. Brian Modoff of Deutsche Bank upgraded Cisco to “buy,” and raised his target price to $22 from $17. So did John Slack at Citigroup, and Todd Koffman at Raymond James. Cisco appears to be “on the right track,” wrote Ittai Kidron of Oppenheimer & Co.

Shares are surging accordingly. As of 10:35 am ET, they’re up by $1, or more than 6 percent, to $18.61. That’s not a full recovery to where it was before this whole drama began a year ago, and yes, it has been painful to get to this point. But it’s a start. The question now is whether Cisco can make it stick.

As I listened to the conference call with analysts yesterday — and watched the stock climb this morning — I kept hearing in my head the song “How You Like Me Now?” by the Heavy. This morning, I thought I’d share it. Enjoy:

So is Cisco on the road to the turnaround it has been promising since missing earnings expectations badly in February? Maybe so, says Stifel Nicolaus analyst Sanjiv Wadhwani in a note to clients. He says he expects Cisco to slightly beat guidance that has sales in the range of $10.86 billion to $11.18 billion, which would amount to growth of between one and four percent.

Wadwhani says checks with Cisco resellers show an improvement in pricing versus the year-ago period, though it’s hard to know whether that’s temporary. Hewlett-Packard’s networking business may be exerting less pressure on Cisco because of its own recent corporate drama.

Additionally, the product transition in the switching business that Chambers had blamed for many of Cisco’s earnings difficulties in prior quarters appears to be largely completed, Wadhwani says — which means business will not be the drag on results that it has been in recent quarters. “Overall, we believe that switching performed in line to slightly better versus expectations.”

Also performing better than expected, he says, is Cisco’s routing business, in which it has been taking share away from Juniper both in the core and edge routing businesses.

The consensus of analysts calls for Cisco to report earnings of 39 cents on sales of $11.02 billion. Wadhwani rates it a buy with a target price of $20. That would get it close to the $20.23 its shares traded at the end of 2010. With Cisco trading down 79 cents today — or more than four percent, given the swoon in the wider market — the shares have fallen by more than 13 percent this year.

Cisco also did what many analysts have been urging for some months and reduced its long-term growth targets to levels it has a better chance of meeting. It said it now expects revenue to grow annually at 5 to 7 percent through 2014 and called for operating margins in the 25 percent range, which is pretty much in line with what some analysts had suggested.

So were they convinced? A little. John Marchetti of Cowen and Co. called it “a positive analyst day.” The more aggressive stance versus competitors and the realistic targets should give the shares a “boost over the near term,” he wrote in a note to clients today. While Cisco’s valuation, which is at about nine times Marchetti’s forward EPS for the 2012 calendar year, is arguably low, he kept his rating at neutral. “Shares look cheap,” he said, “but we do not see a near-term catalyst to drive the stock higher and believe the muted growth outlook and macro-headwinds especially in light of Cisco’s exposure to government and European customers.”

Sanjiv Wadhwani of Stifel Nicolaus was more convinced. In a note to clients today he wrote that “the worst seems to be behind” Cisco following a product transition in its switching business that was responsible for at least part of its troubles over the last few quarters. Moreover, the pricing environment in switching — which had been driven down in part by an aggressive Hewlett-Packard campaign and profit margins on many of its switching products — are “approaching historical levels.” On top of that, he says Cisco has some moves it can make to trim some operational expense — he called them “opex levers” — to make sure that per-share earnings grow faster than sales. He rates Cisco shares a buy with a $20 price target.

Cisco sees Juniper as being “spread too thin” in the marketplace right now, Wadhwani writes. But Cisco’s line of attack won’t necessarily be lower prices. Indeed, the opposite may be true, he wrote: Cisco “will intensely focus on gross margins going forward.”

But that’s not to say there won’t be other weapons, like marketing trash talk. Here’s a sample: Cisco has launched a site where it accuses Juniper of “overpromising and under-delivering.” If there’s more to come like this — frankly, from both sides — the fight should be fun to watch.

Additionally, Chambers (pictured from his interview at D5) will likely lay out his plan to get Cisco growing again, following a restructuring that saw 6,500 jobs eliminated, and certain parts of the company — in particular, the Flip video camera business – shut down.

Financial analysts have been agitating for Cisco to take down its long-term financial models for most of the year, and since they’ll be the ones in the audience today, Chambers would be nuts not to address their concerns. The model may seem like a small detail, but analysts rely upon these forecasts in order to help them calibrate their expectations, and thus help their clients make better investment decisions going forward.

One recent suggestion for how the new model should look came from Gleacher analyst Brian Marshall in a note to clients on Aug. 11. He suggested that Cisco could realistically forecast annual revenue growth of 10 percent and an operating margin of 25 percent. Currently, he says, Cisco’s long-term growth models call for sales to grow annually in the 12 to 17 percent range, with operating margins in the range of 28 to 31 percent. Over the last five calendar years, he wrote, Cisco has averaged revenue growth of 11 percent — worse if you exclude growth from acquisitions — and operating margins just shy of 29 percent.

But it won’t all be numbers and figures today. Alongside the analysts meeting, Cisco will be talking about some new server technology it has developed internally using the UCS computing platform it developed with EMC and VMWare. Cisco has opened up a data center in Raleigh, N.C., that it says is being used for two things — applications development and disaster recovery.

Now, if you don’t know anything about disaster recovery, allow me to explain why that’s a big deal. The typical way companies use disaster recovery is to have a second data center — essentially a carbon copy of the first one that’s used day in and day out — sitting on standby, waiting for the day when it is needed. And while it’s critical to have when the power goes out at your primary site, or some natural disaster like a tornado strikes, it’s also expensive. Disaster recovery hardware sits around doing nothing important, while at the same time racking up costs for power, maintenance and floor space. Wouldn’t it be great if you could use it productively, too?

Cisco has figured out a way to do exactly that, and will demonstrate it today. The data center, which is in Research Triangle Park, has been set up to support application development on a daily basis, but if disaster strikes one of Cisco’s other main data centers — its sites in Texas, for instance — it can be turned around within 24 hours and serve as a disaster recovery site. Oddly, Cisco is demonstrating this mainly as a way of showing off what UCS can do, and it’s also sharing the particulars with customers. It is not, however, offering it as part of a new product or service.

Cisco shares are still trading in the midteens, down from a 52-week high of $24.60 in November. The shares are showing new signs of life, however. Having bounced off the bottom of a 52-week low of $13.30 last month, they’re starting to climb again. And yesterday Cisco rose 54 cents, or more than three percent, to $16.09. Investors seem hopeful that there will be a better outlook from Cisco today.

The company, which has posted three straight quarters of lower profit on a long margin slide, has been broadly restructuring into what Chairman and Chief Executive John Chambers has called a “leaner and more focused” operation. That included plans announced last month to lay off 9 percent of its work force, as well as a review of its product portfolio for places to cut back. The changes build on similar strokes earlier this year, such as an internal reorganization in May to simplify structure and the sale of the Flip video camera in April.

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Of those leaving the company, 2,100 are taking a voluntary retirement buyout package that’s been made available to people whose age and years of service add up to a sum of 50 60. For example, an employee 40 50 years old with 10 years at Cisco would be eligible. An additional 4,400 will lose their jobs outright, but will no doubt receive severance packages. The remaining 5,000 or so are employees of a Cisco plant in Mexico that is being sold to Foxconn, the Taiwanese contract manufacturer. They will become Foxconn employees.

These reductions are the third significant step in what’s expected to be a four-step process, spearheaded by CEO John Chambers, to get Cisco on a leaner, more competitive and more profitable path. Analysts are, so far, fairly positive on the cuts.

Brian Marshall of Gleacher & Co. in San Francisco, who last week predicted that Cisco would cut 5,000, gave a tentative thumbs-up to the move. Cisco’s goal throughout the process has been to take out $1 billion in annual operating costs. Marshall says that it looks like Cisco could do better than that: He thinks the cuts could yield $1.7 billion in savings and add 25 cents in per-share earnings to the bottom line in 2012.

Breaking it down, he says the 6,500 jobs cut could result in $1.3 billion in savings from retirements and firings, assuming a cost of about $200,000 per head. The sale of the facility in Mexico will yield about $400 million in reduced cost of goods sold (COGS).

The next step, which Marshall expects in September, will be for Cisco to recalibrate its long-term financial expectations. Long accustomed to telling Wall Street to expect in the 12 to 17 percent range, the more realistic range for Cisco, Marshall says, is now closer to 10 percent, plus or minus a few points. Gross margin expectations will have to come down, too, to about 25 percent, down from a range of 28 to 31 percent.

Shaw Wu of Sterne Agee in San Francisco called the reductions “painful but necessary.” He notes that Silicon Valley hiring has been pretty strong of late and that those Cisco folks losing their jobs should have little trouble finding work at companies like Facebook, Apple or Google, though I’d suggest that Hewlett-Packard’s up-and-coming networking unit or Juniper will be eager to pick up some Cisco talent.

On the sale of the factory to Foxconn, Wu sees Cisco as winding up for a spin-off of the set-top box business. “We view the Foxconn transaction as effectively a restructuring of its lower margin set-top box business and think ironically, could make a potential future spin-off easier with the manufacturing detached.”

Update: A few of you have written to say my initial characterization of the retirement package terms was incorrect. The required sum of age plus years of service is 60, not 50. Sorry about that.

“We were too complex,” Mr. Chambers told a gathering at a company event here that drew more than 15,000 customers and other attendees. “You will see us leaner and more focused.”

Mr. Chambers said the reorganization, which the company has been promising since mid-May, will cut the number of groups involved in developing new products. For example, multiple groups that create operating systems for Cisco will be combined into one, he said. The company also will streamline Cisco’s sales organization, Chambers said.

“The market is changing, and we are going to change faster than anyone else,” Mr. Chambers said.

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This occurrence brings into focus the apparent intensifying of competition in the enterprise video conferencing market between the networking giant Cisco Systems and several other players who hope to challenge it, among them Polycom and a start-up called Vidyo.

The second of these two video conferences occurred Tuesday in a telepresence suite at a Cisco office in Manhattan. The occasion was the announcement of Cisco’s latest ASR 9000 router, a powerful piece of gear that can move 96 terabits of data every second, sufficient bandwidth, it says in a press release, to simultaneously stream in a second video recordings of every Super Bowl game and World Cup and Cricket World Cup match ever played.

The meeting was held at multiple sites. Two telepresence rooms in New York were used, two more in California, one in New Jersey, one in Atlanta, and one in Milan, Italy. Execs from various Cisco customers from Comcast, Cox Communications, Tata and FastWeb, service providers all, testified about how great the ASR 9000 is, and how it’s making their business easier and so on.

You’ve probably attended a meeting like this, but if you haven’t it’s a curious experience. Attendees appear on large high-definition video screens arrayed on the other side of a conference table meant to create the illusion that they’re in the room with you. Holding a meeting like this is more effective than a traditional conference call, and cheaper than paying the travel costs that would normally be required to get the same people gathered in a room.

The launch event was meant to follow Cisco’s release last week of its Visual Networking Index forecast, its assessment of how big the Internet is, and how big it’s going to get a few years out. Video, hailed often by Cisco CEO John Chambers as a key strategic play that will eventually help Cisco work its way out of its current troubles, naturally figured prominently in the forecast. Consumers and businesses alike will be demanding lots of video, whether it’s for entertainment or for holding meetings.

If you’re a service provider seeing video demand, Cisco’s ASR 9000 line of routers are proving “increasingly popular” as the analyst Jess Lubert of Wells Fargo securities wrote in a research note to clients on June 6. “Several content, media, and service provider customers are deploying the platform to leverage its advanced video capabilities.” This bodes well for Cisco’s business on the back end of video. And Cisco also participates in the business of selling the front end. All the telepresence gear bore Cisco’s brand. Indeed, video conferencing–or what Cisco calls collaboration–is one of the things that is going right at Cisco these days. It’s on track to be a $4 billion business this year, and is growing at a healthy 25 percent clip.

But there are challenges. Elsewhere in Lubert’s note were some observations that Polycom is winning some business away from Cisco. Demand is strong for gear from both vendors, yet frustration among some customers and partners with Cisco and its Tandberg unit is causing them to steer more business toward Polycom for the moment, Lubert writes.

There’s no denying that Polycom is on a roll. Sales grew 26 percent in 2010 to $1.2 billion, and group telepresence products accounted for $796 million, or 65 percent of sales. Its shares have risen by 135 percent since October. And last week it spent $89 million to acquire Hewlett-Packard’s Halo video conferencing business, a rare divestiture for HP, the world’s largest technology company. HP, a latent rival to Cisco in the networking space, will resell Polycom equipment as part of the deal. Meanwhile Polycom said it will expand its relationship with Microsoft, whose Lync video conferencing software, as Lubert wrote in the Wells Fargo note, is turning out to be a big driver in sales of Polycom equipment. So when we talk about office video conferencing equipment, we know who the two main players are: Cisco and Polycom.

All this brings me to the first of those two video conferences in which I participated this week. On Monday I was introduced to Vidyo, a New Jersey-based video conferencing start-up that aims to upend both of the established players with a product that undercuts them on price and outdoes them on features and flexibility.

Till now, Vidyo was focused on the desktop video business, but it has aimed its sights at higher-end office conferencing systems. Backed by $74 million from Menlo Ventures, Rho Ventures, Sevin Rosen Funds, Star Ventures and the Four Rivers Group, it has now set its sights on the higher-end video conferencing market.

The first thing I noticed during the Vidyo meeting was what I called The Brady Bunch Effect. Nine screens were arrayed in a conference room, for nine different people against light blue backgrounds (as in the picture above) in a way that reminded me of the old TV sitcom. The company calls the product VidyoPanorama, and it can support as many as 20 screens at a resolution of 1080p with 60 frames per second. Vidyo CEO Ofer Shapiro told me that just such a system with nine screens could be set up for $60,000 compared prices in the $300,000 range for similar systems from the bigger players with fewer screens. Vidyo’s starting price for a four-screen system is $40,000. It also supports tablets and smart phones, including Apple’s iPad 2 and phones and tablets running Google’s Android operating system.

All a company needs to get started is a good Internet connection and a Vidyo router added to a rack in its data center. There’s also an application that must be installed on whatever Mac/PC/tablet/phone you want to use for conferencing.

Video conferencing and telepresence are the sort of technologies you keep hearing about, but they never seem to reach any critical mass. I’ve heard people say “This is the year for video conferencing” since about 2003, and yet in 2011, it’s still unusual, at least in my anecdotal experience, to participate in one. Yet the numbers don’t lie. Companies want it, and just as Cisco and Polycom are making a serious go of selling it to them, here comes a start-up ready to turn that business upside down. If I were Cisco or Polycom, I’d be worried.

Cisco COO Gary Moore confirmed on a conference call with analysts Wednesday that job cuts are coming, and CEO John Chambers made repeated references to plans for Cisco to exit businesses where it is not already a number 1 or number 2 player in the marketplace and to take $1 billion out of annual operating expenses.

During the conference call, CFO Frank Calderoni said that Cisco’s headcount as of the close of the quarter was 73,408 and that 40 percent of that number constituted jobs added through acquisitions of other companies. The four analysts that Reuters asked said the company could cut up to 4,000 jobs, with an average forecast of 3,000. That would amount to 4 or 5 percent of Cisco’s workforce.

That number could be mitigated a bit by the early retirement program that Cisco has initiated. Chambers mentioned it a few times during the conference call, and as yet it’s unknown how many Cisco employees will take advantage of it. Calderoni said to expect a one-time charge in Q4–the current quarter–ranging from $500 million to $1.1 billion depending on how many employees decide to jump. They have several more weeks to decide. We’ve already seen a lot of early departures within the ranks of its upper management. And given its 26-year history, there are probably many people who are in a place where they can double dip, taking a severance or retirement package from Cisco and then move straight into another job.

Analysts have been all over the map in their critique of Cisco’s attempt to turn things around. Generally they’re positive on the resolve of Chambers and the rest of his team to cut back on operating expenses and exit businesses that Cisco can’t dominate, but that leads to bigger long term questions. Will the cuts be enough? And will Cisco be able to properly defend its traditional turf in the networking businesses from persistent attack by Juniper Networks, and other upstart players like F5 and Hewlett-Packard, which has been winning new accounts by offering a 20 percent discount to customers who trade in old Cisco gear.

While it’s never a good time to lose one’s job, the timing could certainly be worse. Hiring at tech companies, especially in and around Silicon Valley, is surging both at established companies like LinkedIn and at start-ups. A recent survey by Silicon Valley Bank found that 83 percent of start-ups expect to add jobs during the year. Time at an industry titan like Cisco has to count for something.

“This quarter played out as we expected,” Chief Executive John Chambers said in a statement. “We have acknowledged our challenges. We know what we have to do.”

All eyes and ears will be on whatever further plans Chambers discloses as part of his plan to turn the networking giant around.

1:34 pm: So the call is getting underway.

The usual earnings boilerplate. Forward-looking statements blah-blah-blah.

And here’s John Chambers.

I’d like to crystalize where Cisco stands at this time. The network is the most valuable asset in IT. Cisco is a very strong company in a healthy market with a few problematic areas. And that we are taking comprehensive steps to address.

The first is streamlining our operating model. We are making it easy for our customers and partners to do business with us and speeding decision making.

$1 billion FY 12 costs coming out.

Divesting underperforming operations (Like the Flip Camera??!?! -.Ed)

We are focused on making changes to our operations that make consistent profitable growth. We are moving quickly and will continue to execute our action plan.

Q3 met expectations, Q4 will continue to show weakness while we do the hard work to make the changes behind the scenes.

We know what we have to do. We have a clear game plan. We have had to make big changes before and each time we have emerged stronger.

First on today’s call we will share perspective on the current environment.

Second we will share areas that are under pressure including what we think are market driven and not.

Missed third and fourth things. :(

Starting with the current environment. He’s listing off the five priorities again mentioned in the streamlining press release the other day.

1:39 pm: We have acknowledged our challenges and the need for speed. We are intensifying our focus

Areas of concern: We’ve had several areas come under pressure. Consumer, set top boxes, switching and public sector. We have taken action and are excuting well in our next generation of video and set top.

The switching market is in the midst of a significant transition. Price per port is coming down. This is good for our customers. It will enabler faster adoption going forward. In the short term it puts pressure on our revenue opportunities. Our gross margins have come under pressure because of a transition at the high end as customers adopt Nexus 7K.

In order to address this shift we have introduced a new set of products, our largest ever refresh in so short a time period.

We are transforming both our cost and organization structure. From a product capability and innovation perspective we are positioned well. We are highly leveraged to benefit as the market stabilizes.

Public sector: We are seeing pressures on public sector spending all over the world.

We are in almost every sector of government, and the vast majority of business is new every quarter. You may be starting to see these changes in earlier phases from our market peers.

Public sector has traditionaly repesented 20 percent of our business.

No excuses, we must adjust quickly. We are and we will.

What’s going well: Solid sales growth across key markets. In a number of cases actions to improve gross margins.

Collaboration: A $4 billion revenue and order perspective. Our year-over-year growth has exceeded 25 percent in ever quarter and in Q3 was 39 percent including the Tandberg acquistion. Annual run rate of $1.15 billion.

Data center virtualization and cloud, $1.5 billion run rate, growing 60+ percent.

UCS grew to 1,570 customers. That’s the univeral compute product aimed at data centers.

BRIC countries grew 18 percent, Russia 14 percent, others grew as well.

We gain mindshare among global service providers. Service provider video remains a key priortity. Our servce provider video strategy will remain network centric.

Services grew 14 year over year.

1:48 pm: We are taking very specific steps to address our challenges. We are identifying key areas of work, simplifying operating models, managing our portfolio where we elminate or cut low producing areas. What we have done to date, we have appointed a COO, reorged sales and services. We’ve moved away from board and council structure. Finally streamlined operations across the company.

We closed Flip and restructured home networking. I asked Gary to become COO and to have a laser focus on simplifying operations.

Now Gary Moore is speaking.

As we look in our portfolios aligning with our priorties. Aligning people and investments to move with speed and agility.

A comprehensive portfolio review starting with consumer business. We are looking both at current and long term market potential. We will keep you posted on these decisions.

We have re-organized the major functions of sales and services, and moved away from a broad council and board structure.

Our $5 billion R&D budget will be focused on accelerating leadership while employing world class product development processes. We will focus on speeding up the time to innovation. We have appointed two seasoned leaders for the eningeering team.

We are looking across the business for actions to improve costs. Using Q4 as our base, majority of the actions wil be taken by Q1 FY12.

“Focus on workforce deployment levels.” That sounds like some layoffs may be looming.

Reduce our line and redeploy.
WE DO ANTICIPATE A WORKFORCE REDUCTION. There, he said it.

There’s an early retirement program in place. The decision to include headcount reductions as a way of reducing expense is difficult. It is not something we take likely.

likely=lightly.

Chambers is speaking again.

1:55 pm: Now I’d like to move on to Q3 and highlights.

European markets were mixed, better in north than south.

Emerging countries doing well, especially the BRIC countries.

Routing grew 7 percent
new product revenue grew 15 percent
data center 31 percent
security 2 percent
wireless 32
and video connected home decreased.

Frank (missed the last name) is giving the numbers and will give the guidance for Q4

Frank Calderoni, CFO, is speaking.

Next quarter we will report new geographic segments as announced in the reorganization earlier this week.

Calderoni is running through the Q3 numbers but the important stuff is the Q4 guidance.

Cisco reduced hiring to get expenses under control.

Balance sheet: Cash $43.4 billion. Up $3.1 from last quarter, including net borrowings of $1.5 billion, and operating cash flow of $3 billion. About $6 billion held in the U.S.

Chambers says the Japan team did an “amazing job” after the earthquake.

Calderoni is speaking again.

Headcount: 73,408, 40 percent were from acquisitions.

Wonder what that number will be next quarter?

Here’s the guidance for Q4:

We will take $1 billion out of annual expenses. In connection with these actions we expect future restructuring charges. The extent relating to these activities is not currently known.

We expect further restructuring charges of $40 million, bringing the total to $190 million.

In Q3 we started a voluntary early retirement program. We expect changes of $500 to $1.1 billion from that. The extent will depend on number of employees who elect to participate.

2:08 pm: Q4 we expect revenue flat to up 2 percent year on year.

Non GAAP operating margin 24-25 percent.

Non-GAAP EPS to be 37-39 cents.

We expect non-GAAP total gross margin at about 62 percent though it may vary.

We are moving quickly and will continue to implement our action plan. We will continue to show some weakness while we work through this.

Chambers is speaking again. He’s talking about Fiscal 2012 which starts in July.

Our portfolio positions is for growth next year. We will communicate what we expect at our analysts meeting in September.

We are completely committed as a leadership team to make the required fundamental operating changes to our model.

I have always believed that our strategy and direction starts and stops with our customes. We are well positioned in their minds for leadership. No one has Cisco’s breadth of innovation or the reach of our innovation model nor the talent of our employees.

Time for Q&A with analysts.

Barclays asks: Spend a little time talking about switching, which was down 9 percent. If you could help us understand what has shifted in the switching landscape and how long it will take to get back.

Chambers: That is a problematic area we have to address. I am very pleased with the new products. We are extremly competitive at the low end, and in the emiddle, and if you look where we are we need a little work on the high end.

Chambers: You will see us moving faster. Our products cycles will be 3 years instead of 5. If you want some additional data, our orders for the swtiching category. The fixed orders were up 8 percent, modular down 10 percent. We have seen some balancing.

We’re coming down with Moore’s Law but faster than Moore’s Law. We have some share challenges, but overall our port position is very solid. Our gross margin is at the high end.

Bank of America question: The revenue growth is healthy sequentially in the guidance. Why do we see revenues growing, but gross margins going down?

Chambers: During Q4 is traditionally our strongest quarter. Our sales force is incented there. It’s a quarter we grow well. But it comes at the back end of the quarter. We had a very good booking quarter in UCS. We did not get a lot of those shipped. Q4 will be very solid in the data center. Cloud activity is taking off. But you are clearly going to see in that quarter. We will provide in September an update on long term guidance; 12-17 percent is off the table.

A question RBC Capital: Asking about whether or not Cisco may end up in a perpetual state of restructuring.

Chambers: Really look hard at our margin components, and see where we need to make a difference. If they are not strategic, we will trim back and we will really cut back.

Each time we’ve done this in the past, we’ve done it crisply and we emerge stronger. Our employees know we’re going to make this change. We want to do it surgically, not with a blunt instrument. I’m not only energized, our whole group is moving fast. Something about working until 9:30 and eating lousy pizza.

Sounds familiar.

Chambers: In 2001 we went through this extremely well.

Question from Goldman Sachs: Asking about the video priority. We agree its part of the future. The thesis has been that there’s a big infrastructure investment. There are a number of offerings including Skype that seem to be significantly lower cost. She’s basically asking about competitive threats to Cisco’s strategy on video.

Chambers: First, we bet on video five years ago. We said video would be the next voice. Second, video will not be standalone streaming through dumb pipes. Medianet enables you to build upon it. To push it to communities of interest, and you can search it.

To your point, you are seeing a number of peers focusing on video. But this is a big growth market and you are going to see a lot of competition.

A lot of our emerging technologies might sell $1 but they might load the networks with 3 to 5 dollars. I love anything that loads networks.

Chambers is especially talkative today.

Question from Oppenheimer: About switching. What you haven’t talked about is strategy around switching. Why should we assume the margin profile of that business will change? Are you more willing to lose share to maintain margin?

Chambers: A tough question.

Chambers: In terms of switching, if you’ve standalone switches and you’re just in the background you’re going to have a hard time over the next five years.

As you tie together switches to data centers and to device type you have an architecture that no one else has.

Port share: We are holding our own with lots of competitors coming at us. Whether it’s on price we’re going to go at them.

We’re starting to win some of our financial accounts back.

I would think about it as port share in one category, but in another market share, but also margin comparison, but also what you want your revenue to be.

We are clearly improving our markets there. Ah, Chambers just mentioned David Yen, just hired from Juniper.

Question from UBS: A question about operating expenses. Looking at the guidance, looks like it will be $4.1 billion and the annual savings of about $250 million per quarter. Should I look at annual opex at about $15.5 billion? Second, when you mentioned there would be a billion dollar charge from the severance, is all the opex you talked about to come just from the severance?

Chambers: Let’s assume $16.8 billion. We clearly have an expense run rate that’s too high given revenues. You have to bring expense growth down.

Calderoni: The restructuring would be in GAAP and not in the non-GAAP results. As we get more refined, we’ll identify it. Of the restructuring charges that I mentioned, those are part of the consumer announcement we already made, about $180 million. The other thing that would be part of the $1 billion would be early retirement but the program is open and it has 7 weeks left for employees to decide.

Calderoni: We’ll have a clearer view of it later.

UBS: What percentage of the opex will be from early retirement?

Chambers: We have our own internal modeling. Once you start talking about it you can do the math and figure out headcount reductions. Early retirement treats people with class. We will then look at the delta between employees and contractors. That will roll out and be announced to our employees first.

Management meetings will happen next week. We’re going to do it surgically. We’ve got to allow the teams to execute on the five stages. And then how you drive it through. This is heavy lifting. We’re not going to just do a haircut. You have to create a structure and then drive it through each layer. It will be shared later within this 120-day cycle.

Question from Credit Suisse: Back to margins. Regarding the long term structure. Is the pricing pressure coming just from Hewlett-Packard or Huawei and others? Another question on maintaining share at a lower price at cost of margin. How do you negotiate that?

Chambers. It’s very difficult. The question on lower price and lowering margin I don’t buy. Our gross margins on our prior generation, and current generation of switches are within a couple points. We’ve done a pretty good job on port share given how hard the competition is coming at us.

If you don’t get the market early you often don’t get it three years later. We’re going to get hit by HP and Huawei on price. That’s a given. There will be others who do it in a vertical stack like IBM. You have other players who come at us with silicon and software. We’re going to maintain our lead on switching. We know the barriers to entry are low, but they’ve been low for 20 years.

Question from Morgan Stanley: The gross margin was strong this quarter. Why was it strong?
Flip as it is now? Was it in the numbers and is it in the numbers for Q4?

Chambers: Occassionaly I speak a little bit fast. (You’re telling Me! -Ed.)

Chambers: On Flip. It was in the results for part of this quarter, but it’s out for next quarter. That’s about 1 percent of our business that is gone.

Calderoni: Margin improvement was 1.5 points. Half was related to non-recurring items. Exiting Flip contributed, and removal of some inventory impacts we had seen contributed to margins as well. Going into Q4 you don’t have the non-recurring.

Question from Deutsche Bank: About margins on switches.

Chambers: Gross margins on the 7000 series switches are about 18 points below those of the 6000.

Desutshe Bank asks more on switching. Revenue is down 9 percent and how did port shipments do and can you break it down on campus and data centers.

Chambers: Unsure on this one.

Chambers: Down 5 percent fixed, and orders up 8 percent year over year. Port shipment. We ran that analysis when we ran share of market. It’s a nice way of saying I don’t have the data to answer.

Deutsche Bank asks about councils. You went from 5 to 3. Do you think a direct line structure might be a better structure.

Chambers: We went from 9 councils to 3 and from 42 boards to 15. It connects our strategy with operations.

Gary Moore: At the high level, coming at it a different way. We moved to functional leadership driving the three councils we have left.

2:54 pm: The executives who run the councils “own the number,” Moore says. We have to be aligned and competitive.

The third council that we left in place. It is the emerging countries council.

We are doing business in countries where we don’t have infrastructure. I felt it was important to leave that council in place. Elimination of six councils and 31 boards is not the headline. It’s the way we have changed the way we’re operating. We’re going to drive our earnings faster than our revenue.

Chambers: We’ve simplified our organization, and we did with engineering and sales. It allows us to align cost structure and determine ownership on what asset to divest.

Question from Ticoderoga will be the last one. A question about a product that had some buzz at Interop.

Chambers: Our partners EMC and VMware called a market transition. We are making very good progress. Our pipeline looks very good. If I were to talk federal government alone, we moved quickly to collaboration, and we’re seeing decline. It’s an architectural play. If you’re a pinpoint player, you’re going to get commoditized. Our peers are now starting to come at it the same way.

Chambers’ closing remarks: I’d like to talk about the positives.
I’m going to focus on the areas that are problematic for us. Switching and public sector: We have to move faster and bring down expensive. We’re going to approach this simply. We’re going to simplify the focus of our operating model, and focus on the cost structure. And we’re going to divest underperforming assets. Our board, our leadership team, and our employees are totally unified in this. If I were a competitor, this is a tough company to bet against. There are areas where we must do different. The buck stops here, I get it.

3:01 pm: That ends the call.

It said it has defined five priority areas: Core, which is its traditional routing, switching and services business; Collaboration; Data center virtualization and cloud; Video; and architectures for business transformation. The point of the changes, Cisco says, is to improve the customer experience, simplify the operating model and to focus more on its key priorities. See? This is why the Flip Camera had to die.

The shake-ups include a realignment of the sales operations around three geographic regions, all of which will continue to report in to Executive Vice President Robert Lloyd. Cisco Services, the company says, will be revamped to align with the field operations, and will continue to report in to COO Gary Moore.

Cisco’s Engineering division will be run by two executives: Senior Vice President Pankaj Patel and CTO Padmasree Warrior. Within engineering, a new Emerging Business group run by Senior VP Marthin De Beer will focus on early stage business, especially video and the Medianet architecture. The whole engineering group will report up to Moore.

The re-org comes as Cisco is bleeding managerial talent. Last month Zynga nabbed Debra Chrapaty, former SVP of Cisco’s Collaboration group, to be its CIO. Then there was Dan Scheinman, general manager of the EOS video group Flip Video, who resigned the day Cisco announced the last bit of its restructuring. Also last month, Nawaf Bitar, Cisco’s former head of security, jumped to rival Juniper Networks. Bloomberg News today quotes Robert Ackerman, the founder of Allegis Capital who has sold three companies to Cisco, as saying Cisco has a “culture that frustrates talented people.”

It’s not clear that all of the changes CEO John Chambers promised last month in a memo to employees will get the job done. In his memo, he conceded that the company had been “slow to make decisions,” and had been surprised in places where it should not. This followed some quarterly earnings reports, the most recent one in February, that have surprised shareholders for their weakness.

The company says the changes announced today will take place over the next 120 days, and the new sales organization will formally be in place by the end of July. Cisco shares rose 15 cents–or less than 1 percent–in early trading. But it will probably take longer to see any meaningful change. As analyst Brian Marshal of Gleacher & Co. put it in a research note issued to clients shortly after the announcement: “While we applaud Cisco’s recent moves, we believe it will take a non-trivial amount of time to move this tanker ship.”

Right after BoomTown heard the sad news this morning that Cisco was jettisoning its Flip digital video camera division–part of a transparent effort to assure Wall Street that it was no longer serious about its wacky foray into the consumer market–I lobbed in a call to its founder Jonathan Kaplan to get him on video talking about the loss.

The Flip, of course, has been my go-to tool to harass and annoy Silicon Valley moguls, since it appeared on the scene many years ago. The technique for the simple device was to essentially stick it up someone’s nose until they cried “Uncle!” and told me what I wanted to know.

It’s not entirely clear why Cisco didn’t make more of an effort to sell Flip–I got three calls from big consumer Internet and electronics companies that would have been logical buyers this morning alone, all of whom said they would have seriously considered purchasing the iconic brand. It remains the top-selling camcorder in the U.S., with 21.6 percent of the market.

Cisco bought the start-up behind Flip, Pure Digital, in March of 2009 for $590 million in stock, and the product has sold many millions of units in its short and cruelly ended life.

The first commercially-branded Flips were, in fact, introduced at the third D: All Things Digital conference in 2005 by Kaplan, and he first talked with Cisco CEO John Chambers about selling the innovative Flip at D4 in 2008.

While Wall Street has been worried about the impact of smartphones, especially the iPhone, on Flip’s business–helped in part by Apple CEO Steve Jobs making that point in the photo here at a music event in the fall of 2009 (after which, Cisco defended Flip on Twitter)–it still boggles the mind why Cisco could not have found a new home for it, rather than lopping off all those jobs.

Flip has reportedly been profitable on a standalone basis, several sources said, although probably not when you glom all those shared Cisco corporate costs on top of its puny shoulders.

Flip’s axing, in fact, is clearly a lame attempt to get serious by Cisco–whose shares have been suffering of late–in order to assuage investors that it was focusing on its core business of networking after a series of consumer-facing experiments. While these consumer efforts were but a drop in the giant Cisco revenue bucket, killing them gets lot of ink.

Expect more such “We’re back!” announcements from Chambers and Cisco in the coming months, as it is part of the classic CEO Playbook 101.

Kaplan remained mum on all that in our chat in the Noe Valley Starbucks, which you can see below, along with my favorite Flip moment, where I got all up into Facebook co-founder and CEO Mark Zuckerberg’s business. I also added two other videos I did when my various Flip cameras met new versions in 2008 and in 2010.

Big single tear–it’s just not the same with an iPhone:

]]> http://allthingsd.com/20110412/video-after-cisco-sacrifices-his-baby-to-the-gods-of-wall-street-flip-founder-jon-kaplan-speaks/feed/ 10 http://allthingsd.com/20110406/chambers-promises-changes-at-cisco-but-the-task-ahead-is-a-big-one/ http://allthingsd.com/20110406/chambers-promises-changes-at-cisco-but-the-task-ahead-is-a-big-one/#comments Wed, 06 Apr 2011 14:48:32 +0000 Arik Hesseldahl http://newenterprise.allthingsd.com/?p=4765 Shares in Cisco Systems are moving up this morning in the wake of yesterday’s frank epistle to employees from CEO John Chambers.

Conceding that Cisco has been “slow to make decisions” and “been surprised where it should not,” he promised to take “bold steps and make tough decisions.” The consensus appears to be that divestitures are coming.

Cisco has been an acquisition machine during the last decade, but has little to show for it. Obvious candidates for divestiture are its consumer products business, which includes the Linksys brand of home networking gear, and Pure Digital, the makers of the Flip Digital video cameras. Consumer products carry lower margins than other products, and Cisco’s already got enough problems with its gross margins, which have stood at 64 percent since 2008 and gone nowhere.

One problem, the analyst Brian Marshall of Gleacher and Co. wrote in a note to clients issued yesterday, is that Cisco has so thoroughly dominated its core networking markets that it has effectively saturated its market. In looking for new areas to grow into, Cisco has been forced to look for what Marshall calls “adjacent markets,” like consumer networking gear, TV set top boxes, among others, both of which sap the potential for margin growth.

And while it’s hard to argue that Cisco’s low valuation doesn’t create a buying opportunity, there’s a lot more to consider, Marshall says. While Cisco grew its total revenue base by 7 percent from 2008 to 2010, a group of smaller independent competitors–Marshall calls them the “chimps” compared to the Cisco “gorilla”–like Juniper, Checkpoint, F5 Networks, Aruba Networks and a few others–collectively added roughly the same amount of incremental revenue that Cisco did during the same period, and nibbled away at Cisco’s dominance in the process. “Innovative companies can still have an impact in the technology industry even when competing against an 800-pound gorilla,” Marshall wrote.

One ace in Cisco’s deck, Marshall says, is VBlock, a data-center-in-a-box made by VCE, a company Cisco jointly owns with EMC and VMWare, and run by former Compaq CEO Michael Capellas: Cisco adds the networking component, servers and management software, EMC brings the storage and VMWare brings the virtualization. The product is just getting off the ground, but VCE recently said it has a pipeline of orders worth $1 billion and 120 interested customers. It is at least something for Cisco bulls to hang their hats on for now.

]]> http://allthingsd.com/20110406/chambers-promises-changes-at-cisco-but-the-task-ahead-is-a-big-one/feed/ 0 http://allthingsd.com/20110405/read-cisco-ceo%e2%80%99s-mea-culpa-no-excuses/ http://allthingsd.com/20110405/read-cisco-ceo%e2%80%99s-mea-culpa-no-excuses/#comments Tue, 05 Apr 2011 18:40:05 +0000 Shira Ovide http://voices.allthingsd.com/?p=38557 Cisco CEO John Chambers is floating an “our bad” admission about Cisco’s recent stumbles, which have weighed on the company’s stock price.

Cisco’s mea culpa doesn’t have the writerly panache of another recent tech company admission of failures–Nokia CEO Stephen Elop’s “Burning Platform” memo. Chambers, like Elop, isn’t specific about what Cisco will do to right the ship, but it’s clear he’s prepping employees for a significant shake up.

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]]> http://allthingsd.com/20110405/read-cisco-ceo%e2%80%99s-mea-culpa-no-excuses/feed/ 0 http://allthingsd.com/20110401/is-cisco-undervalued-at-least-one-analyst-thinks-so/ http://allthingsd.com/20110401/is-cisco-undervalued-at-least-one-analyst-thinks-so/#comments Fri, 01 Apr 2011 23:28:27 +0000 Arik Hesseldahl http://newenterprise.allthingsd.com/?p=4645 Shares in the networking giant Cisco Systems are trading at more than 38 percent off their 52-week high and haven’t recovered a bit since investors shunned it following an earnings report that contained a relatively negative outlook. Today, in a research note to clients, Brent Bracelin, an analyst with Pacific Crest Securities in Portland, Ore., made the case that investors aren’t giving it enough credit.

The way Bracelin sees it, sales in Cisco’s new business lines such as Unified Computing System–Cisco’s cloud hardware offering–as well as wireless LAN and collaboration products, could triple to $10 billion in 2013 from $3.3 billion in 2009, and could generate a combined operating margin of 25 percent and could account for 20 percent of overall sales.

Too iffy for you? There’s more. Yes, investors are clearly unhappy with the drop in sales of switching products, historically an important Cisco business segment and indeed its biggest segment so far, accounting for 31 percent of sales last year. And they should be unhappy about it. But? Cisco’s non-switching business is on pace to deliver $30 billion in sales this year, Bracelin says, more than double what it did in 2005. This means the non-switching business is growing at a compound annual growth rate of 12 percent, more than double the five percent seen in switching. If all goes well the contribution to earnings of the non-switching business to per-share earnings could be 97 cents in fiscal 2011 and could reach $1.50 by 2014.

Still not convinced? There’s more. The sell-off has pushed Cisco’s valuation metrics to significant lows versus its peers in the tech industry. At $17 a share, Cisco’s market cap of $94 billion works out to an enterprise value to EBITDA ratio of less than five. By comparison, Microsoft trades at more than six times EV/EBITDA, IBM’s ratio is north of eight, Oracle’s is about 10 and Qualcomm’s is nearly 13.

And? That $40 billion in cash that Cisco has on its books is worth more than $5 a share. Meanwhile, investors have turned up their noses at Cisco’s switching business to such an extent that they now value it at only $3 a share while the non-switching business is valued at more than $9 a share. In 2008, the switching business was valued at more than $8 a share. “The sell-off, based on competition and margin erosion, now appears overstated,” Bracelin wrote.

So what does he think it’s worth? Add up all the parts and you get a company that could be valued at anywhere from $20 to $28 a share. And that’s assuming the value of the switching business improves only a little bit. All in all, Cisco shares could be undervalued at anywhere from 17 percent on the low end to 63 percent on the high end.

Investors, however–at least for today–didn’t buy Bracelin’s argument. Cisco shares fell 11 cents to close at $17.04 a share. That’s only seven cents a share higher than its 52-week low from last month.

]]> http://allthingsd.com/20110401/is-cisco-undervalued-at-least-one-analyst-thinks-so/feed/ 9 http://allthingsd.com/20110308/should-the-next-commerce-secretary-be-an-internet-exec-or-would-it-cause-a-schmidtstorm/ http://allthingsd.com/20110308/should-the-next-commerce-secretary-be-an-internet-exec-or-would-it-cause-a-schmidtstorm/#comments Tue, 08 Mar 2011 14:30:14 +0000 Kara Swisher http://kara.allthingsd.com/?p=41381

Yesterday, the Obama administration dribbled out the news that it was going to nominate current Commerce Secretary Gary Locke as the next ambassador to China.

If approved, Locke will surely have his hands full on a wide range of issues, many of them impacting the tech sector, including piracy, privacy and government-sponsored censorship.

Perhaps more interestingly, the move leaves open a post–which the Obama administration actually had a hard time filling initially–that could get a true turbocharge if it were filled by an exec from the fast-growing digital arena.

It’s not a bad idea, since tech is probably now the most critical business arena in the U.S. and one of the only markets in which this country innovates and excels at.

While the Commerce Department has a huge and disparate domain, from international trade to the census to promoting American businesses, its digital footprint has been much less profound than the industry’s increasing importance to the U.S. economy.

After all, despite some interesting international efforts, most of the current crop of tech stars are U.S. born and bred and leading the way in digital innovation.

In fact, every big trend right now in value creation are all coming out of tech.

Gaming? Zynga.

Social networking? Facebook and Twitter.

Retail? Groupon.

Mobile? Google and Apple.

So, why not pick a business person from the area to lead the government agency dedicated to business?

But that’s where it gets dicey.

One more obvious candidate would be outgoing Google CEO–and Obama favorite–Eric Schmidt.

I would assume he might welcome such a prominent post, although putting him in place at Commerce would be a tough road.

Issue one and only: The investigations of Google’s aggressive business practices by federal regulators make this an awkward decision for Obama, given Schmidt would be open to a lot of scrutiny going through confirmation.

But there is a long list of others who could be considered to serve, especially if you think well outside the box.

What about former Xerox CEO Anne Mulcahy, who certainly has the management cred?

Or mega-VC John Doerr, who–despite his recent social fever–might finally get to push his beloved clean-tech agenda onto a larger stage?

What about Facebook COO Sheryl Sandberg, who recently showed she could deliver a boffo speech and who might lend some Silicon Valley magic to her former Washington, D.C. rep?

And while Amazon’s Jeff Bezos’ laugh would have a hard time getting Congressional approval, why not consider someone who has profoundly changed the way an entire business sector does business?

In that vein, Reed Hastings of Netflix also fits the bill.

Except these three execs are pretty busy these days. So, what about former eBay CEO Meg Whitman, whose failed bid to be California’s governor as the Republican candidate leaves her without a post.

President Barack Obama had picked a GOP pol as his second choice for Commerce head, in fact, so Whitman or even Cisco CEO John Chambers are not out of the question.

The point is to perhaps move outside the Beltway’s comfort zone and pick a Commerce Secretary who represents the future rather than the past.

]]> http://allthingsd.com/20110308/should-the-next-commerce-secretary-be-an-internet-exec-or-would-it-cause-a-schmidtstorm/feed/ 3 http://allthingsd.com/20110224/cisco-makes-a-push-in-office-video-while-its-switching-business-is-under-attack/ http://allthingsd.com/20110224/cisco-makes-a-push-in-office-video-while-its-switching-business-is-under-attack/#comments Thu, 24 Feb 2011 16:26:56 +0000 Arik Hesseldahl http://newenterprise.allthingsd.com/?p=3591 Investor confidence in Cisco Systems hasn’t yet come back after the company’s earnings report earlier this month, where it gave an outlook that disappointed analysts. However, one of the things that CEO John Chambers said will get the company firing on all cylinders again is video.

Today Cisco announced some moves on that front. It unveiled a new version of its TelePresence Content Server 5.0 that allows videos to be recorded and shared easily within a company. They’re also searchable, thanks to a network appliance called the Cisco MXE 3500 that can quickly tag the speakers and words in a video clip, so you can quickly forward to the important stuff–when the boss is talking–or search out key words that apply to your department and ignore the other stuff.

Cisco also announced some new video hardware, including a 47-inch TelePresence endpoint, aimed at offices or small conference rooms, as well as a line of IP phones that have cameras built in. Finally it brought out a “digital signage” product that serves as sort of a telepresence kiosk. Say you’re at a bank and see an ad on a display screen for a product or service that you want to know more about. Touching the screen triggers a video chat with a sales rep who will try to close the deal via live video chat.

The shares seem not to be responding in early trading. That may have something to do with word that Cisco is having trouble in its core networking business competing with Hewlett-Packard. HP is offering discounts to Cisco switching customers who–sorry–switch to HP, and Cisco is losing share. Meanwhile, Juniper Networks is out with a new line of networking gear today as well. As HP Networking head VP Marius Haas put it in a chat I had with him late last year, maybe people truly are “tired of paying for Cisco.” Will they be willing to pay for video?

]]> http://allthingsd.com/20110224/cisco-makes-a-push-in-office-video-while-its-switching-business-is-under-attack/feed/ 1 http://allthingsd.com/20110218/intels-otellini-named-to-obama-jobs-council/ http://allthingsd.com/20110218/intels-otellini-named-to-obama-jobs-council/#comments Fri, 18 Feb 2011 18:52:49 +0000 Don Clark http://voices.allthingsd.com/?p=36551 Intel Chief Executive Paul Otellini is not one of the liberal tech leaders who helped President Barack Obama get elected. But he is nevertheless heeding the administration’s call.

The White House is announcing that Otellini will be named to the President’s Council on Jobs and Competitiveness. General Electric CEO Jeffrey Immelt chairs the group, which was created by an executive order in January. Other members are expected to be named in coming weeks.

News of Otellini’s appointment is a highlight of the president’s trip west this week, which kicked off with a meeting Thursday night with tech CEOs that include Apple’s Steve Jobs, Facebook’s Mark Zuckerberg, Oracle’s Larry Ellison, Google’s Eric Schmidt and Cisco’s John Chambers. The meeting was held at the Woodside, Calif., home of John Doerr, the prominent venture capitalist.

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]]> http://allthingsd.com/20110218/intels-otellini-named-to-obama-jobs-council/feed/ 0 http://allthingsd.com/20110218/to-the-trilateral-commission-and-its-new-leader-watson/ http://allthingsd.com/20110218/to-the-trilateral-commission-and-its-new-leader-watson/#comments Fri, 18 Feb 2011 17:05:44 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=58113 The White House has posted a single photo from the Silicon Valley dinner President Obama attended last night. Beyond confirming the guest list that made the rounds Thursday, it’s largely unremarkable–unless you’re inclined to see great import in the seating arrangement at the dining table.

At the president’s right hand, Facebook CEO Mark Zuckerberg; at his left, Apple CEO Steve Jobs. And when Obama looked across the centerpiece, there were the piercing eyes of Oracle CEO Larry Ellison. Note that Jobs and Google CEO Eric Schmidt are safely separated, in keeping with the first rule of dinner-party seating–avoid fistfights.

The theme of the evening’s conversation? Said White House Press Secretary Jay Carney, “The president specifically discussed his proposals to invest in research and development and expand incentives for companies to grow and hire.”

[Image credit: Flickr/WhiteHouse]

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