Cisco Systems Inc. (NASDAQ: CSCO) is the end-to-end leader in networking and communications equipment. Many companies would love to unseat Cisco, and the news that John Chambers is retiring as chief executive may give some of Cisco’s competitors hope that they can nibble away at the company’s dominance. Chuck Robbins, who is replacing Chambers as CEO, has been quick to make his executive changes. He is also potentially locking in Cisco’s leadership out to beyond the year 2025.
By the views of 24/7 Wall St. Cisco will have no problem in the post-Chambers era remaining as the one technology leader in our recent 10 Companies to Own for the Next Decade.
What investors need to consider here is that the recent management changes may seem big. One benefit is that Chambers is staying on as non-executive chairman. That means that the new CEO designees by Robbins got at least a wink or a nod from Chambers, even if Chambers may not have had to green light every decision Robbins is making ahead of the formal change of power.
If we had to guess, Chambers will stay on as non-executive chairman for a while, at least a year or two. Ultimately, assuming things go well under the reign of Robbins, then he will get to take over the chairman role as well.
So, what big changes are being made at Cisco?
Strategist and Chief Technology Officer Padmasree Warrior is out, although she will remain an advisor until later this year. Edzard Overbeek managed the Cisco services business portfolio and will remain in an advisory role for a year. Wim Elfrink, head of Industry Solutions and chief globalization officer, is retiring from Cisco effective July 25.
As far as why Cisco’s new team is making it get a repeat in our stocks to own for the decade, it is multiple issues at once. The dividend and buybacks help handily. Then there is the status as the industry leader with the biggest end-to-end offering. Having the global reach helps as well. Another issue that helps is the pricing power and margins that Cisco has, because it can be one provider for most aspects of its pipes and data center, it can sometimes better protect margins than competitors.
Robbins, like Chambers, remains very sales and results oriented. The new top management structure at Cisco is obviously loaded with Robbins’s core favorites, and the move of shrinking the team is obviously aimed at being able to act more nimbly and react quicker.
It is not uncommon at all for managers to quit after monumental CEO changes occur. After all, if there are three or four heirs apparent, only one can take the throne. The executives who do not win generally take their talent elsewhere and often go on to other high-level opportunities in other companies — and they generally reap the reward with huge signing bonuses.