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Is Wall Street calling for the ouster of Cisco CTO Padmasree Warrior?

The career of Padmasree Warrior (who might have been the heir apparent to Cisco CEO John Chambers) appears to be in jeopardy!

Sun, 11/27/11 - 11:51pm    View comments

In his note to yours truly last week, Wall Street analyst and RBC Capital Markets Managing Director - Mark Sue assailed Cisco's engineering reorganization:

"Is Cisco, the $100B networking giant, a Sales organization or an Engineering organization? Cisco has global presence, a loyal customer base, and strong channels and is a marketing machine on track to generate $46B in revenues next year. We're all aware of the challenges the company went through, but most of those issues are largely behind us, except for one. Cisco has an issue with attrition in Engineering. For Cisco to be successful, it needs to excel in both Sales and Engineering.

"About one-third of Cisco's 63,465 employees are in engineering and the re-org and subsequent re-alignment has created some rifts within the department. Competitors seem to be hiring away Cisco engineers at a high rate, and in addition to losing mid-level engineers, Cisco is starting to lose its limited Distinguished Engineers.

"Cisco has begun to acknowledge the problem, which is an important start to stemming the departures. Operational change is not always easy to deal with and better alignment and heightened purpose of the Engineering department can be just as effective as, if not more than, doling out RSUs."

Sue then appeared to call for the ouster of Cisco CTO Padmasree Warrior who is the co-head of Cisco engineering:

"Structurally, we're not fans of co-heads (we'd prefer to see Pankaj Patel lead), and tying Engineering closer to product development may give folks a clearer line of sight for their efforts."

Cisco's Engineering Reorganization Chart:

Source: Cisco Systems

Sue added:

"We don't think it's just about aggregate R&D spending, either. Cisco spent on average $4.8B on R&D annually for the past four years but had product revenue growth of only +1% CAGR over that period. High levels of R&D dollar spend don't necessarily correlate to increased revenues; rather, it's the efficiency of spend."

Source: Seeking Alpha

Sue concluded:

"Cisco has done a commendable job of turning around Sales and we think it can make similar improvements in Engineering. The consensus CY12 EPS for Cisco is $1.85 and we think it can get there with top-line growth of ~+6% and the benefit of opex cuts. The issue is CY13 EPS and even a great organization can only get so far without refilling the innovation funnel. We've found that employees generally live up to their perception of management's expectations of high performance and for Cisco's Engineering department, a better structure, more empowerment, additional flexibility, and purpose may return it back to prominence."

The following recent internal Cisco email confirms Sue's concern over the continuing turmoil that's being experienced within Cisco engineering:

Source: Cisco Systems

More unconfirmed rumors heard around Cisco, meltdown in the Cisco Security Business Unit:

"So... this month Ambika Gadre resigned, but didn't announce it, and last week she announced the departure of her remaining report, Shalabh Mohan. Along with everything else that's gone on, the Security Business Unit at Cisco is basically eviscerated of its leadership, which is a curse and a blessing. A curse because there's a big vacuum to fill, and a blessing because this represents the last of the IronPort poison that had infected the BU for the last four years."

A recap of recent events:

• April: Nawaf Bitar, VP of Engineering in Security Business Unit resigns, goes to Juniper.
• July: Nick Edwards, VP of Security Marketing resigns, goes to Silver Tail Systems.
• September: Tom Gillis, SVP, Security Business Unit resigns - without having replaced Nawaf.
• This month unconfirmed: Ambika Gadre, Senior Director of the Security Business Unit resigns without announcing.
• Last week unconfirmed: Shalabh Mohan, Director of Engineering, Security Business Unit resigns.

Why is Cisco's top cloud talent bolting?

Chad Berndtson of CRN confirms my Cisco executive departure rumors

Rifts between management and engineering appear to be depressing Cisco's stock price

Unconfirmed rumor: Cisco Enterprise SVP Manny Rivelo bolts for Dell Force10

Cisco's borderless networks SVP Brett Galloway has left Cisco

Cohen joins Cisco alumni at network hypervisor vendor Nicira

Discord between Cisco engineers and Cisco technical marketing appears rampant

Brian Schipper senior vice president of human resources bolts Cisco

Cisco's restructuring embeds operating committee, councils, boards and working groups deeper into Cisco's new management structure

What's your take?

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