By Don Clark
John Chambers is ending his 20-year run atop Cisco Systems Inc.
on a high note, handing the reins to a dark-horse internal
candidate with the company's shares near a five-year high.
But successor Chuck Robbins, a 17-year Cisco veteran, faces big
challenges at the Silicon Valley network-equipment giant as
corporate customers consider new ways to connect and harness their
computing power.
Mr. Robbins, 49-years-old and a senior vice president who has
specialized in sales and relationships with business partners,
officially will become CEO on July 26. Mr. Chambers will become
executive chairman, and said he expects to spend much of his time
advising his replacement.
The disclosure ends years of speculation about Cisco's
succession plans, and underscores a generational shift at many
large technology companies. International Business Machines Corp.,
Microsoft Corp., Intel Corp., Oracle Corp., Qualcomm Inc. and SAP
SE have all named new chiefs in recent years--each time opting for
an internal choice.
Mr. Chambers, who turned 65 last August, wasn't a Cisco founder.
He arrived in 1991, and took over as CEO in 1995, spearheading an
extraordinary growth phase. Snapping up many smaller companies, he
moved Cisco from its pioneering stronghold in Internet devices
known as routers into switching systems and the home, placing Cisco
at most important junctions of the Web.
For a brief time in early 2000, Cisco was the most valuable
company in the world, with a market value above $550 billion. But
the company suffered after the Internet-stock bubble burst, and its
stock never regained its prior heights. On Monday, its shares rose
4 cents to $29.17.
In more recent years, Mr. Chambers upended longtime sales
relationships with IBM and Hewlett-Packard Co. by selling computer
servers in competition with them. His frequently stated goal was to
make Cisco the No. 1 information-technology company in the world,
partly by helping to connect all kinds of consumer and business
devices in a trend called the Internet of Things.
Mr. Robbins predicted the next wave of business will be "two to
five to ten times bigger than everything we've experienced in the
past."
He becomes CEO-designate as Cisco faces an array of challenges.
Many customers are shifting their spending toward so-called cloud
services operated by the likes of Amazon.com Inc. from
internally-operated computer systems. Others are deploying new
breeds of software that reduce the need to buy switching
hardware.
In China, Cisco's sales have been hurt by suspicion about
potential links to U.S. intelligence services. In some other
markets, such as equipment purchased by cable providers, Cisco has
lagged behind some competitors.
"A lot of the core technologies are now under function and price
pressures that Cisco has never really seen before," said JR Rivers,
a former Cisco executive who is CEO of rival startup Cumulus
Networks.
The challenges aren't evident in Cisco's recent results. Profit
in the first six months of Cisco's fiscal year, ended in January,
rose 23%--helped by a gain on restructuring a joint venture--while
revenue rose 4%. Cisco's gross margin, the portion of revenue
remaining after manufacturing costs, remains at nearly 60%,
unusually high for a technology hardware company.
Some investors say they would have preferred an outsider to
address the challenges rather than a company veteran who may be
closely supervised by Mr. Chambers.
"This company is fat and insular," said Jeffrey Bronchick, chief
investment officer at Cove Street Capital LLC, which holds a small
stake in Cisco. "It screams for change."
Cisco board members defended what they described as an
intensive, 16-month search that considered external and internal
candidates. The company said Cisco's nine independent directors
interviewed leading internal candidates for several hours each, and
required all top candidates to present detailed plans for Cisco in
a meeting earlier this year.
The directors said they conducted a secret straw ballot--with
Mr. Robbins coming out first among internal candidates--and
confirmed their selection in a formal vote on Friday.
Mr. Robbins' selection surprised some people outside the
company, as other Cisco executives have achieved more prominence in
recent years. Among internal candidates, many analysts considered
the front-runner to be Cisco President Robert Lloyd, who is 57.
Board members felt Mr. Robbins and Mr. Lloyd were strong
candidates, a person familiar with the process said. Another
suggested that Cisco's board apparently decided to skip a
generation to select the younger man. Both men have solid sales
backgrounds, but several people who know them said Mr. Robbins is
more popular with employees and is very good at running
operations.
Mr. Chambers praised his successor as "an execution machine,"
adding that he won't unduly second-guess his successor. "He will be
in charge, make no mistake about it."
News of the succession plan raised questions that Mr. Chambers,
a well-known Republican, might consider public office or working
with one of the presidential campaigns. He said that possibility is
unlikely, though he might get more involved in philanthropy or
other community activities.
Cisco plans to release third-quarter results next week. Mr.
Chambers said Cisco still expects revenue growth of between 3% and
5%, as it initially forecast in February.
Shira Ovide and Joann S. Lublin contributed to this article.
Write to Don Clark at don.clark@wsj.com and Lisa Beilfuss at
lisa.beilfuss@wsj.com
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