Cisco Systems (CSCO) is in the midst of cooking up a large reorg plan that may include Chairman and CEO John Chambers announcing his retirement as early as this September, according to several sources familiar with the chatter inside the company. 

Chambers' retirement has been brought up before in the investment community. Chambers, who is 64 but turns 65 in August, has talked about retirement over the years, and when the subject came up in 2009, the estimates ranged from anywhere to 3-10 years. That was five years ago. Chambers has been in charge at the company since 1995, and his face is synonomous with Cisco, which he led to be an enterprise networking juggernaut by making hundreds of acquisitions and building a fierce marketing and sales culture. 

Also, given Chambers' own recent forecast of a "brutal" coming decade for the IT industry, maybe it's just the right time to hit the golf links (Chambers is known to enjoy golfing). 

The retirement talk comes from several sources close to the company, and was confirmed by some Wall Street sources. 

"There has definitely been a lot of speculation about it," said Simon Leopold, managing director with Raymond James. "He's 65 so at some point he is going to retire. I hope when it comes it's transparent and Cisco gives the investment community some lead time." 

A Cisco spokesman contacted for this article says the company "does not comment on rumors," but pointed out that the company has said it will talk about succession six months before it takes place. That implies that if Cisco were to announce Chambers' retirement, say, in the next few months, there would then be a transition period. So Chambers could stay through early 2015 if that were the case. 

Wall Street would obviously be keenly interested in who is next, and it probably doesn't want to see the kind of soap opera that played out at Microrosoft (MSFT), where the succession strategy dragged out very publicly for about six months. Sources close to Cisco said that the Chambers' retirement talk is bubbling up as the company looks at a major restructuring plan that could include tens of thousands of employees potentially being laid off. 

In 2012, Cisco Systems named possible successors to Chambers, most of them Cisco insiders. The names included Gary Moore, chief operating officer; Robert Lloyd, executive vice president of worldwide operations; Chuck Robbins, senior vice president of the Americas; and Edzard Overbeek, senior vice president of global services.

The story makes sense, because Cisco is at a unique turning point. Last year, with growth slowing and an ongoing cost-cutting plan being implemented, it announced big new focus on the Internet of Things (IoT) and Software Defined Networking (SDN). Cisco paid up nearly $1B to bring SDN spin-in Insieme in-house, used by Chambers to build an SDN story. This was one of its largest acquisitions in years. The first products tied to the Insieme acquisition are expected to roll out this summer.

This makes it a critical transition time, and the most logical one for Chambers to step down. Growth at Cisco has slowed, and 2013 was a brutal year of cutbacks after Cisco missed initial projections. It's clear that Cisco's core markets have slowed and finding a way to squeeze more money out of enterprise networking customers is becoming more challenging with the advent of SDN and open-source solutions. This has led to a more shareholder friendly approach favored by other large incumbent technology companies, including major job reductions and increased dividend payouts. 

Chambers may also be watching Juniper Networks, which has been targeted by Elliott management in an aggressive shareholder activist campaign. This has made new CEO Shaygan Kheradpir's job a major headache, as he tries to manage the company while Elliott presents detailed restructuring plans that include major cuts -- trimming much of the company's spending to boost the dividend payouts. 

Chambers and Cisco might be looking at all of these natural turning points and thinking, yes, this is the time. 

[Disclosure: No position in Cisco shares]

This entry was posted on Tuesday, June 10, 2014 at 22:32 pm and is filed under Infrastructure & SDN, Investing.
Keywords: Cisco Systems, John Chambers, Juniper, Elliott Management

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