Cisco 2013 Annual Report Download - page 10

Strategy and Focus Areas
Our focus continues to be on our five foundational priorities:
• Leadership in our core business (routing, switching, and associated services), which includes comprehensive security
and mobility solutions
• Collaboration
• Data center virtualization and cloud
• Video
• Architectures for business transformation
We believe that focusing on these priorities best positions us to continue to expand our share of our customers’ information
technology spending.
We continue to undergo product transitions in our core business, including the introduction of next-generation products with
higher price performance and architectural advantages compared with both our prior generation of products and the product
offerings of our competitors. We believe that many of these product transitions are gaining momentum based on the strong
year-over-year product revenue growth across these next-generation product families. We believe that our strategy and our
ability to innovate and execute may enable us to improve our relative competitive position in many of our product areas even
in uncertain or difficult business conditions and, therefore, may continue to provide us with long-term growth opportunities.
However, we believe that these newly introduced products may continue to negatively impact product gross margins, which
we are currently striving to address through various initiatives, including value engineering, effective supply chain
management, and delivering greater customer value through offers that include hardware, software, and services.
We continue to seek to capitalize on market transitions, which we believe are gaining in frequency. Market transitions relating
to the network are becoming, in our view, more significant as intelligent networks have moved from being a mere cost center
issue—where the focus is on reducing network operating costs and increasing network-related productivity—to becoming, a
platform for improved revenue generation as well as driving business agility and strategy execution.
Market transitions for which we are primarily focused include those related to the increased role of virtualization/the cloud, video,
collaboration, networked mobility technologies, and the transition from Internet Protocol (IP) Version 4 to Version 6. For example, a
significant transition is under way in the enterprise data center market, where the move to virtualization/the cloud is rapidly evolving.
There is a continued growing awareness that intelligent networks are becoming the platform for productivity improvement and global
competitiveness. We believe that disruption in the enterprise data center market is accelerating, due to changing technology trends
such as the increasing adoption of virtualization, the rise in scalable processing, and the advent of cloud computing and cloud-based
IT resource deployments and business models. These key terms are defined as follows:
• Virtualization: Refers to the process of creating a virtual, or nonphysical, version of a device or resource, such as a
server, storage device, network, or operating system, in such a way that users as well as other devices and resources
are able to interact with the virtual resource as if it were an actual physical resource. For example, one type of
virtualization is server or data center virtualization, which consists of aggregating the current segregated data center
resources into unified, shared resource pools that can be dynamically delivered to applications on demand, thus
enabling the ability to move content and applications between devices and the network.
•The cloud: Refers to an information technology hosting and delivery system in which resources, such as servers or
software applications, are no longer tethered to a user’s physical infrastructure but instead are delivered to and consumed
by the user “on demand” as an Internet-based service, whether singularly or with multiple other users simultaneously.
This virtualization and cloud-driven market transition in the enterprise data center market is being brought about through the
convergence of networking, computing, storage, and software technologies. We are seeking to take advantage of this market
transition through, among other things, our Cisco Unified Computing System platform and Cisco Nexus product families,
which are designed to integrate the previously segregated technologies in the enterprise data center with a unified architecture.
We are also seeking to capitalize on this market transition through the development of other cloud-based product and service
offerings through which we intend to enable customers to develop and deploy their own cloud-based IT solutions, including
software-as-a-service (SaaS) and other-as-a-service (XaaS) solutions.
The competitive landscape in the enterprise data center market is changing. Very large, well-financed, and aggressive competitors are
each bringing their own new class of products to address this new market. We expect this competitive market trend to continue. With
respect to this market, we believe the network will be the intersection of innovation through an open ecosystem and open standards.
We expect to see acquisitions, further industry consolidation, and new alliances among companies as they seek to serve the enterprise
data center market. As we enter this next market phase, we expect that we will strengthen certain strategic alliances,
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