Technology giant and Dow component Cisco Systems, Inc. CSCO announced that its long-time Chief Executive Officer (CEO), 65-year-old John Chambers, will retire in June. Following his retirement, Chambers will continue to serve as board chairman and also stay involved in the company’s operations.
The CEO will be succeeded by the vice president of worldwide operations for Cisco’s global sales and partner teams, Chuck Robbins, who will take over on Jul 26. Investors seemed unaffected by the announcement as share price reaction to the news was muted.
Chambers joined Cisco in 1991 and became the CEO in Jan 1995 at the age of 46. During his tenure, Chambers returned significant value to shareholders through significant share repurchases and dividends (it has one of the most attractive dividend rates in the Dow). The company returned $13.3 billion through stock buyback and dividends in fiscal 2014 and was the sixth-best performer in the Dow Jones Industrial Average last year.
Chambers was the man behind making Cisco one of the most valuable corporations during the dot-com bubble and stabilizing the company after recession. Under Chambers, the company has seen its revenues grow from $1.2 billion in 1995 to $47 billion last year, a whopping 4,000% increase. Last year was in fact the second-strongest year for the company.
Robbins joined Cisco in 1997. He was elected to the company’s board on May 1, 2015. Robbins helped lead many of Cisco’s investments and strategic funding rounds. Robbins played a key role in developing the company's strategy for its enterprise business segment, which helped it to generate 25% of Cisco’s revenue, and also sponsor the Sourcefire and Meraki acquisitions. He was also behind building the industry’s leading partner program, which now generates more than $40 billion in revenues for the company each year.
Cisco is the leading provider of routers and networking equipment, which form the backbone of the Internet. But the company’s legacy technology is under threat from a new technology called software-defined networking (SDN). This technology offers a way to make networks faster, cost-effective and easier to handle. The networking giant is also under attack from the rise of nimble competitors, which are chipping away its market share. Cisco has its own answer to SDN, but because it has a significant legacy business it could still see some pressure.
As a result, the company is betting on and trying to establish itself in the emerging "Internet of Everything" market. It has good growth prospects as very soon almost every person, device, or sensor will be able to feed data into a network.
Robbins will face quite a few challenges taking up such a big responsibility. But looking at his track record, achievements and success in a very short span of time, analysts are optimistic that with a little planning, he will carry out his responsibilities successfully.
Cisco currently has a Zacks Rank #3 (Hold).
Better-ranked stocks in this industry include Groupon, Inc. GRPN, Healthstream Inc. HSTM, and Infinera Corp. INFN. All these stocks sport a Zacks Rank #1 (Strong Buy).
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