Cisco competitor to John Chambers: You’re too big!

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Chart: CNNMoney

By now, you’ve probably heard about (if not read) the e-mail that Cisco CEO John Chambers sent to the company earlier this week. It was a stunning admission of the company’s failings in the past few years, with the biggest takeaway being that Chambers believes Cisco has “disappointed” investors and “confused” employees.

Much has been made about what Cisco needs to do to get back on track. I wrote about this just a few weeks ago over on CNNMoney proper. But one of Cisco’s smaller competitors has an interesting take: Cisco is simply now just too big.

Dominic Orr, the CEO of Aruba Networks, is going head-to-head with Cisco in the wireless networking market. Smaller companies like Aruba, as well as Juniper Networks, F5 Networks and Riverbed Technology (to name a few) have been able to nip at Cisco’s heels, taking away market share thanks to a more narrow focus.

Aruba is benefiting from the explosion in demand for wireless connectivity. And that’s because Orr has kept the company concentrated on just that: wireless.

Orr explained how Aruba was founded at the time that Intel was unveiling its Centrino chip designed specifically for laptops. That was a key moment in tech as it validated the notion that people would want to access the Internet on the go. And that helped begat the era notebooks, smartphones and now, of course, tablets.

Cisco is in wireless networking as well. But Cisco also owns disparate businesses ranging from cable-set top boxes and the Flip video camera to Web conferencing and security. That’s on top of the bread-and-butter business of selling routers and switches. Some investors are pressuring Cisco to cut some of the non-core businesses loose.

Orr, the subject of a fascinating profile by my Fortune colleague Stephanie Mehta in 2007, said that Cisco isn’t guilty of missing too many key tech trends. But it’s hard to be dominant in everything. And investors tend to punish companies for the jack of all trades and master of none approach to a market.

"It’s not a matter of Cisco missing it in terms of vision. The issue is just that Cisco is confronted with so many tasks," Orr said. "They always have been big. But they were alone. Now they are big in a crowded market."

The proof is in the pudding. And in case that tortured metaphor isn’t clear, that particular pudding of which I speak is stock price performance. Cisco is down 13% this year and 33% in the past 12 months. Aruba’s stock is up 44% this year and has more than doubled since last April.

"Cisco is a big company that may have been promising too much growth while its core business is under attack," said Orr.

Steve Blank, the author of “The Four Steps to the Epiphany” and an expert on start-ups, said that he thinks Cisco has taken the necessary step of admitting that it has to do things differently. But now Chambers has to execute if Cisco hopes to regain momentum from smaller rivals like Aruba.

"The world has changed. What’s old is new and what’s new is old. Even Google is becoming the new Microsoft," said Blank. "There is no guarantee that a company will live forever." — Paul

Has Cisco hit bottom?

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Chart: CNNMoney

Don’t look now but Cisco is on a tear! Ok. That may be a stretch. The stock is up about 3% in the past four days. But the mere fact that Cisco’s stock is riding a four-day winning streak is worth noting.

Cisco hit a 52-week low on Thursday. It is a stock that investors love to hate this year. It’s no longer the super-sexy growth company it once was. Upstarts like Juniper and F5 have stolen its thunder in that department. But the company announced on Friday that it would soon pay a 6-cent per share quarterly dividend.

And that got investors mildly excited. Some shareholders have been clamoring for John Chambers to start parting with some of Cisco’s mountain of caysh for years. Cisco had resisted, using the time-honored excuse that many other techs with squeaky-clean balance sheets have, namely that they have better uses for their money than doling out quarterly checks to the widows and orphans crowd.

But Cisco may not have better things to spend that caysh on. The thought of Cisco taking on another acquisition probably scares most investors since Cisco has already been a shopaholic: Linksys, Scientific-Atlanta, WebEx, Pure Digital (owns Flip) & Tandberg — just to name a few.

So now Cisco has made the bold step to admit it’s a mature blue chip company. And instead of shying away from that, it might be something to embrace. Cisco’s dividend works out to 24 cents a year, a yield of 1.4%. That’s not too shabby for a first-time payout.

I’ll probably look more at Cisco in tomorrow’s Buzz over on CNNMoney proper. But definitely would love to hear some thoughts from Tumblr followers here. Has Cisco bottomed and are better times ahead or is it still going to be dead money for a long time? — Paul