2017 prediction 9 – more M&A – Cisco will restructure

Table 1 – 2016 acquisitions, joint ventures and offloads by the top 10 ITC suppliers

Source: ITCandor, 2017

There were many acquisitions, mergers and offloads by major suppliers in 2016, culminating in the acquisition of EMC by Dell’s owners. EMC’s experiences show that ‘first mover advantages’[1] don’t always work in our industry – it managed to overtake IBM’s storage business in the 1980s before eventually being acquired despite being the market leader last year. I show all of the activities I could find for the top 10 ITC suppliers (which actually included neither Dell nor EMC) in the Table 1.

The problem for these big suppliers is that, although the overall market is growing slightly, ITC products and services are becoming more commoditised, reducing profitability below the level that can sustain the large number of employees and profit expectations of traditional American, European or Japanese suppliers and their shareholders.

The use of the mega-theme marketing has been a (often naïve) way of trying to manage market commoditisation – it’s as if users are being told ‘this is a very complicated area, we’re the only one that can help you deploy things successfully… and the description of what it is changes every year.’ Merger and acquisition activity is being used to hone each vendor’s portfolio, disposing of the non-core businesses they consider to be unaligned from a total revenue or profitability point of view and/or buying those that offer a better fit with their new strategies. I believe that there is one vendor – Cisco – which has so far avoided significant organisational changes (due mainly to its massive 56% share of the $51b enterprise network market in the year to September).

My ninth prediction is that Cisco will restructure itself in a major way in 2017 in order to compete more effectively with other leading ITC suppliers.

Its market share is especially threatened by Huawei, which is growing its business fast in Europe and Africa and already has larger total revenues than Cisco (including its extensive service provider business).

[1] a marketing term for the advantage gained by the initial significant occupant of a market segment.

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