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Post exclusive interview with Cisco's John Chambers: U.S. can't afford a second stimulus, no double-dip likely


Frank Ahrens (left) interviews Cisco CEO John Chambers.

I had breakfast with Cisco Systems chief executive John Chambers this morning in his suite at the Four Seasons hotel in Washington, where he is attending the Wall Street Journal’s CEO Council.

Cisco makes switches and routers — the plumbing of the Internet. But the company’s future appears to be in video. Earlier this year, Cisco paid $590 million to buy the company that makes Flip video cameras. Right now, Cisco has a $3.4 billion bid on the table for Tandberg, a Norwegian videoconferencing company.

Chambers might be more of a big-picture guy than most CEOs. He doesn't like to get down on the “transactional” level. He’s also salesman and a negotiator, and he’s got little tricks that he employs. He’s affable, but he’s got a little Sun Tzu in him. For instance, I once saw him get up during a group interview, walk over and sit down directly next to a tough interrogator, attempting to neutralize him. Today, Chambers asked if we could conduct the interview with our suit jackets off. (What? Take off my armor?)

In the interview, Chambers says why he believes that the U.S. will emerge strongly from the recession and why collaborative technology -- such as the TelePresence videoconferencing devices he sells -- will boost productivity, creating new jobs. He argues why complete net neutrality won’t work, why a second economic stimulus is a bad idea and why he won’t oppose Hewlett-Packard’s recent bid for a key Cisco rival, 3Com.

Chambers bestrides a number of worlds: His technology business is global and his politics span both parties. He co-chaired Sen. John McCain's presidential campaign, yet he has worked closely with the Obama administration.

Chambers and I both happen to be from West Virginia; hence, the references he makes throughout the interview to the Mountain State and West Virginia University. This interview has been edited.

Frank Ahrens: Should there be a second stimulus?
John Chambers: I think that we can’t afford a second stimulus. I think it would cause economic challenges that would be very difficult to deal with in terms of our ability to borrow as a country. I think it’s very important that this first stimulus gets spent very wisely and we get the whole country focused on job creation.

FA: The U.S. went into positive GDP in the third quarter. Do you see us going back into negative GDP?
JC: My own view is that it’s unlikely. It depends a lot on do we get a wave of hiring started? It will be slow at first. Do we create an environment where businesses want to hire, where my shareholders will say, "That's a good decision"?

FA: So you don’t see a double-dip recession?
JA: I would say the odds on that are low, but there are smart people who see the potential for that.

FA: You’re a big employer. What do you think about the health-care reform bill that’s passed the House and is teed up in the Senate?
JC: Every American should have the right to effective health care. It can be extremely expensive, much more so than if you don’t use technology to dramatically cut the cost of health care, you’ll be disappointed in the future. I haven’t seen as much focus on how do we really provide the health care at a higher quality at a dramatically lower price.

FA: Should people be allowed to buy heath insurance across state lines, the way you do auto insurance?
JC: I think we’re down at a transactional level. The general principle is, are you creating an environment where every American has access to good quality health coverage? To do that, if there’s an issue about going across state lines that prevents that from happening, then you need to address it.

FA: Where do you stand on net neutrality? Would Cisco gain or lose?
JC: Net neutrality is a catch-all for a lot of concepts. Broadband with service capabilities can drive productivity in this country perhaps 1, if you’re an optimistic, 2 percent additional GDP growth in a year. To do that, you’ve got to have the ability to give a specific quality of service. Such as, if we’re watching the West Virginia game, playing Pitt, we want to watch without disruption, be able to look at it from various angles, and we’ll pay a premium for that together to be able to watch it. So I think there is a realistic view that broadband will not be built out without the service providers being able to get a good and fair financial return on their investments. Their shareholders won’t let them do that, nor should any CEO do that. It’s more: How do we accomplish our goals, rather than, are you for net neutrality or against net neutrality?

FA: So what you’re saying, the most radical extreme — complete net neutrality — would be bad for companies, like Cisco, like the telecoms?
JC: Cisco will win either way. The more load there is on the network, the more routers and switches we’ll sell.

FA: H-P and 3Com: Was that a missed opportunity for Cisco, and how do you deal with that level of competition if 3Com is attached to a bigger company? How do you differentiate your switches and routers from theirs?
JC: We tend to come at markets based on transitions or inflection points, not as a focus on a competitor or as a defensive action. Our view is that switches and routers and security and management of any device and any content — data, voice, video — across fixed and wireless networks ... comes together in an architectural play. We’re the only one playing the game that way. Most of our peers focus on price and a box mentality. If you believe it’s an architectural play, most companies are not structured for that, nor do they have the culture to do that.

FA: The H-P deal will require regulatory approval. Will you fight it.?
JC: Absolutely not. ... This is just a logical move in an industry that’s starting to consolidate.

FA: I equate videoconferencing to the personal jetpack: One day in the future, we will all have these. The reason we never had the jetpack, it turns out, was we never needed it. Why do we need videoconferencing? Why is it not the personal jetpack of the future?
JC: One of reasons videoconferencing was not successful in most people’s opinion was that the quality was so bad. The voice didn’t go with the video, you need to be a computer jock to do it. The service providers need to be able to charge you for that and I expect to pay for that. I want guaranteed service when I work from home. If I’m talking to a doctor and they’re about to give me a diagnosis, I’m sitting on the edge of my seat. If you can’t hear that, it causes a heart attack. You’ve seen our Flip vido; this is how I blog. This is how I do my personal interface with my granddaughter. When I fish in Alaska, I send videos to my Dad. When I was at the USC game -- my sister is a USC fan -- I sent her clips.

FA: You sure you weren’t violating copyright there?
JC: [Laughs]

FA: Why is videoconferencing a business?
JC: We think video is not just about communication, it’s about business model changes. You can say, “Make my supply chain this way.” Doctors around the world can deal with pandemic issues, they can see the symptoms of the patients. I think it changes everything. Video is the killer app. Collaboration will drive a decade of productivity in this country and around the world -- 3 to 5 percent gains in productivity per year. It will create a ton of jobs and it solves a number of financial challenges our leaders in Washington are struggling with. You say, “John, that’s mathematically unlikely to occur.” In 1997, in the first phase of the Internet, we said productivity was going to go from 1 to 2 to probably 5 percent. We actually had a chart on the time period and it did that, it hit 5 percent by 2004. We think we’re in instant replay.

FA: Tell me about Tandberg.
JC: There is almost no overlap between what we do with TelePresence and what Tandberg does with their product. Think of TelePresence as the high-end system and Tandberg as the mid-range to the desktop systems. When we went in and sold TelePresence, Tandberg would come in right behind us and said, “We can do your midlevel and desktop systems.” Our customers said, basically, “You go buy this company. It would be in our best interest to see these products work together.”

FA: So here’s my concern: I’m not sure where the new jobs are going to come from. We’re at 10.2 percent [unemployment] now. I can easily see us getting to 11 percent and then hanging there for a long time, because we know unemployment hangs a long time, several months after recessions end —
JC: — several quarters —
FA: — right. Several quarters. So where will the jobs come from and are we smart enough as a people to have the jobs you’re making and want us to have?
JC: First, I have tremendous confidence in the American people. In innovation and execution, we’re the best in the world. If government creates the right environment for the jobs to be located here -- business and government has to work together for common goals on how to grow the economy. Global competition is here to stay. Protectionism will not work and we know that from prior lessons, and for us to be competitive on a global scale and paying our workers more than other countries — sometimes, two to three times more — we’ve got to be more productive.

FA: You were co-chair of John McCain’s presidential campaign and now you’re working with the Obama administration. How has that party transition, as it were, gone?
JC: What both parties should do is move where the majority of America is. I think we’ve got to get the country back in the middle.

FA: But you didn’t work for both parties — you worked for the Republican Party.
JC: Both parties need to move toward the middle.

-- Frank Ahrens
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By Frank Ahrens  |  November 17, 2009; 2:31 PM ET
Categories:  The Ticker  | Tags: 3Com, Cisco, H-P, John Chambers, Obama  
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Comments

John Chambers: "I think that we can’t afford a second stimulus. I think it would cause economic challenges that would be very difficult to deal with in terms of our ability to borrow as a country."

No wonder unemployment is at 10.2%. Chambers displays a shocking misunderstanding of how national currency systems work. Since Nixon closed the gold window ~1973, the $US is not backed OR LIMITED by anything except ... public initiative [aka, public spending]. [Ergo, we don't "borrow" our currency, we print as much as we need, whenever we need it.]
Since a monopoly currency is simply one of the tools used to denominate public transactions - and hence is simply one way to instrument public initiative - arbitrarily limiting currency supply equates to arbitrarily limiting public initiative. (Otherwise known as self-imposed ignorance.)

Whatever happened to the supply of doubters asking "Why SHOULD we be restricted by ... [anything?]" We have a decline of Yankee ingenuity & audacity.

Chambers: "I think it’s very important that this first stimulus gets spent very wisely and we get the whole country focused on job creation."

Then tell Summers & Geithner to distribute enough currency through public spending to allow citizens to more easily denominate earnings, savings & re-spending. The only way we can "run out of money" is by running out of public initiative. What part of DUH! don't they understand?

Posted by: falfypuss | November 17, 2009 11:08 PM | Report abuse

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