Cisco's John Chambers Pooh-Pooh's The Hot New Tech Threatening His Company

Dan FarberCisco CEO John Chambers made a point on Wednesday to downplay the threat of an up-and-coming technology called software-defined networking (SDN).

SDN changes the way networks are designed, moving fancy features out of expensive network hardware and into software. Companies can then buy cheaper  hardware and less of it.

Cisco today generates gross margins upwards of 60%. SDN could really hurt that.

Naturally, Chambers is taking the threat seriously. Cisco has made multiple announcements of its SDN plans, mostly geared toward keeping its customers using and buying more of its high-end hardware.

But he’s also pooh-poohing it. During a conference call with Wall Street analysts, Chambers stepped up the SDN smack talk. He admitted that all sorts of companies are pushing SDN forward. (Just last week, Facebook announced its big new SDN plans.)

He predicts they’ll tank.

“History is littered with companies big and small, upstarts and established, that bet against Cisco and failed,” he said, later adding, “We’re already onto our next challenge beyond SDN.”

That would be pretty interesting, given that SDN is very new. Young startups are being bought for millions to over $1 billion, days to months after shipping their products.

SDN startups say they’ll have a $35 billion market by 2018, up from $252 million in 2012.

Even Cisco’s own marketing materials, which claimed that it’s easier to find Bigfoot than an actual SDN user, admitted that interest in the new tech is high. 71% of 1,300 IT professionals Cisco surveyed said they planned to deploy SDN products in the next 12 months.

No doubt Cisco will survive. Chambers is frantically trying to remake Cisco from company that relies so heavily on network equipment sales. He wants Cisco to be viewed as  an “IT company,” meaning one that offers a smorgasbord of IT hardware and software.

He’s making some progress. For instance, Cisco Unified Computing System (UCS) servers have become a $5.5 billion business, growing 35% year over year, he said.

Even so, switching and routing account for about two-thirds of Cisco’s $50 billion business today.

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