On Monday morning, Cisco Systems, Inc. (NASDAQ:CSCO) announced in a press release that 20-year veteran CEO John Chambers will be stepping down on July 26, to be replaced by the company’s current Senior Vice President of Worldwide Field Operations, Chuck Robbins.
The news doesn’t exactly come as a shock, considering that Robbins had been on management’s short list of possible candidates since 2012.
No specific reasons were given for Chambers’ decision to step down. But one thing is certain: It isn’t because Cisco stock is performing poorly — as was the case with Zynga Inc’s (NASDAQ:ZNGA) CEO debacle last month — or because Chambers made a blunder that offended an important customer — as was the case when Juniper Networks, Inc. (NYSE:JNPR) abruptly fired its CEO late last year.
In fact, since his rise to CEO on Jan. 6, 1995, Chambers has helped Cisco stock climb from $1.89 to almost $30, an increase of nearly 1,400%. Under his leadership, CSCO revenue has grown from approximately $1.2 billion annually to $48 billion, and earnings per share have risen 3,000%.
Typically, the announcement of a CEO’s retirement is followed by some volatility in a stock’s share price as investors worry about the company’s future under new leadership.
That hasn’t been the case for Cisco stock.
Wall Street Is A-OK With Chuck
It appears as if investors have no qualms about Chuck Robbins and his ability to lead CSCO to new heights. Shares of Cisco stock barely registered a reaction to the news, and in fact traded higher during the day by more than 0.5%.
Appointing a salesman as new Cisco CEO was likely a wise decision, considering the current and future state of the technology industry. Facing droves of new competitors and an ever-evolving IT landscape, CSCO needs a motivated leader with foresight and ideas to stay in the race.
Hiring from within — Chuck Robbins has been with CSCO for nearly 18 years — means less time will be needed for the new Cisco CEO to become familiar with the company’s operations.
Cisco’s press release described Chuck Robbins as “a leader with an extraordinary ability to connect vision, people and ideas to drive strategy and execution.” He has the unanimous support of the board of directors, and his impressive history heading up the company’s commercial business segment — which accounts for 25% of CSCO’s overall revenue — is a clear indicator that Robbins knows how to bring in money, or more accurately, how to sell more products and services.
Amid a whirlwind of major corporate restructuring throughout the technology sector that has frequently been led by job cutting and related downsizing measures, putting a successful salesman at the helm of one of the world’s largest IT companies should come as a welcome change.
Expect Chuck Robbins to focus on increasing sales and expanding the CSCO product portfolio, particularly with respect to the evolving Internet of Things concept. If the company is to remain true to its “people deal manifesto,” which includes, among other goals, values and priorities, the notion that, “We connect everything,” and “We innovate everywhere,” the new Cisco CEO must be fearless in his pursuit to take the company to new highs.
At 15 years John Chambers’ junior, Chuck Robbins should have plenty of energy to make bold moves in an effort to keep Cisco stock rising and expand its offerings to remain a dominant force in both cloud computing and the Internet of Things.
CSCO shareholders also have the comfort of knowing that John Chambers is not leaving the company. Instead, his position will shift from current chairman of the board to executive chairman, effective July 26. Chambers expects to remain executive chairman for approximately one year, with plans to step down entirely in the fiscal year ending July 2016.
Bottom Line
Cisco stock is a secure staple in the IT space, and a wise choice for long-term tech-heavy portfolios seeking capital appreciation and consistent dividends.
If Chuck Robbins becomes the leader CSCO management envisions, Cisco stock will perform extremely well in the coming years.
As of this writing, Greg Gambone did not hold a position in any of the aforementioned securities.
