Is It Time for Robbins to Move On at Cisco?

We are approaching Cisco earnings on November 12, so it's time to talk more about Cisco and the future of Cisco CEO Chuck Robbins.

Is Chuck leaving? That's the buzz on the street. In our travels and conversations over the past two months, we've heard from several Cisco insiders, and this seems to be a not-so-secret rumor circulating Silicon Valley: Robbins’ retirement announcement may be imminent.

We contacted Cisco about two weeks ago to comment on this buzz we are hearing, and they denied that Robbins is going anywhere. "Chuck isn't leaving," a spokesperson told me. If an announcement is imminent, it seems likely it would come on the November earnings call or near the close of the year.

A New Era of Downsizing

Why would it be time to switch CEOs now? There's a lot going on. The signals of big changes are already out there. Cisco is in the middle of a brutal 7% downsizing which includes selling buildings on its campus and looks like the end of an era. Robbins has been at the helm of Cisco for nearly a decade (he started the job in 2015). And it's hard to see how cutting massive amounts of staff will cure Cisco's growth ills.

Judging by our own audience engagement in anything Cisco, there seems to be an intense interest in this topic, given the breadth and legacy of Cisco's influence on technology markets (Cisco's army of current and former employees represents a large chunk of the networking technology workforce). Our coverage of Cisco over the last few months has garnered more than 50,000 page views and lots of phone calls. What's going on inside there? (Cloud Tracker Pro subscription required). Answer: A lot.

In this analyst's opinion, it feels like the right time for Robbins to move one. Cisco has undergone growth struggles the past two years. The tectonic shift of cloud infrastructure toward software and AI doesn't play well to Cisco's strengths, because it's slanted toward cutting-edge data and software plays. Up-and-coming infrastructure and networking companies such as NVIDIA and Arista Networks are sucking a lot of the oxygen out of Cisco's datacenters.

During the Robbins tenure, Cisco has done dozens of acquisitions, with a few successful ones and many that have been forgotten. The company has made progress in its transition to more software subscription sales and cybersecurity. But its stock price has been lackluster during his tenure and the company has largely missed out on the AI boom.

As we have written in detail here on Futuriom and elsewhere, Cisco’s growth has stalled in recent years and investors might welcome new leadership. As I wrote on Forbes last spring, its AI story needs better traction.

The Robbins Legacy and What's Next

So what's next? I've been told by sources that a likely successor could be Gary Steele, the former Splunk CEO who was recently named as Cisco's President for Go-to-Market (not sure exactly what that means, but it sounds close to CEO).

Why would you switch CEOs now? Splunk and Steele are currently key to Cisco's future. The $28 billion Splunk acquisition is also key to Robbins' legacy. Cisco's growth over the years has largely been driven by M&A, rather than R&D. That has been the core weak point of the company, as heavy R&D companies such as NVIDIA have blown by Cisco by tapping new markets such as AI infrastructure. Cisco's market cap is $225 billion and NVIDIA's is $3.4 trillion.

Robbins’ M&A track record will take years to be evaluated. One of the more successful deals under his tenure was the acquisition of optical component supplier Acacia Communications. Acquired for $4.5 billion in 2021, it was much smaller than Splunk, but it has been very strategic. By acquiring a major component supplier in Acacia, Cisco has been able to consolidate its own supply chain and shore up margins and reported revenue by including its own captive component supplier with its equipment sales (most networking competitors buy their optical transceivers from an outside supplier).

Chuck Robbins, Chair and Chief Executive Officer, Cisco. Copyright: World Economic Forum/Walter Duerst

The push into annual recurring revenue is another one of Robbins’ most important accomplishments, as the company has been looking to transition from a hardware-heavy model to a software subscription one. In reporting its last fiscal year in August, Cisco’s revenues shrunk nearly 10% but overall software subscription revenue grew. Total ARR was $29.6 billion, including $4.3 billion from Splunk, up 22% year over year.

Going forward, the massive Splunk deal is the key to everything, especially the software revenue. There are many opportunities to tie Splunk's observability and security customers into other Cisco products, and Cisco has already intimated they think that Steele is the guy for that.

The challenge is that Splunk is now regarded as mature technology. There are rafts of startups with cheaper, more nimble observability and SIEM technology. So keeping momentum at Splunk will be a huge lift.

Do Traders Anticipate Something?

The market may be already hinting at the changes ahead. Cisco shares have been perking up lately. The stock has been strong in the past few months. It's been receiving more attention, including a recent upgrade from Citigroup analyst Atif Malik, who upgraded the rating for Cisco from Neutral to Buy and increased the price target from $52 to $62. Cisco shares have underperformed the S&P in recent years.

Does Wall Street know something? (Disclosure: This analyst has no position in Cisco stock.)

Apparently it’s well known among Cisco employees and Silicon Valley executives (including ex-Cisco employees) that Robbins has relocated to Atlanta, Georgia. It’s also well known that Robbins loves playing a lot of golf. For the record, Robbins played in the recent Pebble Beach Pro-Am and has a 15 handicap, one better than mine.

The timing would be perfect. Robbins’ tenure at Cisco has been rocky at times, but the company appears to be starting a recovery from a particularly rough period. Cisco’s revenue shrunk nearly 10% in the last fiscal year ending in August, but it appears to be bouncing back now as orders have returned after a year of a customer inventory glut generated during the COVID supply-chain chaos.

All of this adds to the picture that it looks like a great time for Robbins to retire. I anticipate this announcement may come before Cisco's next earnings announcement, which is scheduled for November 12.