"You are going to see a brutal, brutal consolidation of the IT industry where out of the top five players, only two or three of us will be meaningful in as quick as five years," he said on Monday, during the opening keynote of Cisco's annual customer conference, Cisco Live. "We know we have to change."
He suggests that those top players are Cisco, IBM, HP, Microsoft, and Oracle. And although he doesn't predict which ones will go by the wayside, he did diss competitors HP and IBM by name, saying, "When we talk about the top five IT players, watch how disastrous the last 2.5 years have been where an HP and an IBM haven't had revenue growth for two to three years."
This is the chart he showed, documenting how many quarters of growth each have had. It shows Microsoft, not Cisco, doing the best with 14 quarters of 3% or better revenue growth.
These are the vendors vanishing between today and 2018 on his chart: Juniper, CheckPoint, Ruckus, Palo Alto Networks, Avaya, Aruba, F5, ShoreTel, Riverbed, Huawei, Arista, Fortnet, Polycom, and Brocade.
VMware is trying to forever alter the network industry by selling networking software that runs on cheap, commodity hardware, a concept called software-defined networking (SDN). This has the power to greatly erode Cisco's 60%+ profit margins and maybe put Cisco on the endangered species list.
Last week, when talking to Wall Street analysts on the quarterly conference call, Chambers more or less dismissed the VMware threat, insisting Cisco would quickly crush it.
In truth, Cisco probably won't crush VMware. It probably won't die, either. Instead Cisco will come up with SDN products that will sell well in a market that won't be in full swing for a number of years yet.
(By the way, Cisco and VMware are also close partners, running $1 billion joint company called VCE together, so it's a delicate love-hate relationship.)
In the meantime, Chambers also predicts a general bloodbath for all businesses everywhere. He noted that only 24% of the companies on the Fortune 500 25 years ago are still on that list today.
Here's the chart he showed:
"Every company in this world has to be realistic ... Out of the private sector companies in this room, regardless of where you are in this world, 87% of you will have a major financial shortfall in the next 15 years, and a little over 10% of you will ever come back from it. And of all the enterprise companies in this world, only a 1/3 of us will exist in a meaningful way in 25 years."The companies that survive will cope with the rapid pace of change better than those that fail, he counseled.