With a $133 billion market cap, networking giant Cisco
Mac Greer: What is one surprising way that Cisco makes money?
Inder Sidhu: I would say that our services business is a little bit surprising. Our services business is a large business; it is about $8 billion or so, but it is surprising because we actually have very rich margins, in the mid-60%-type of gross margins for that business. It is a little bit surprising because people often think of services as a much lower margin business. For us, services are right up there with product in the mid-60s as a gross margin-type of business. That sometimes surprises people, but it doesn't surprise us internally because we actually have very high-value services which are much more around the intellectual property of Cisco. So I think the high value, highly intellectual property rich-type of services is one of the surprising ways in which we make money. It is an annuity-oriented business, but it is still 65% gross margin.
Greer: And what do you think the biggest misconception about Cisco's business is?
Sidhu: I would say the biggest misconception for us is that we only innovate through acquisitions and the fact of the matter is that about 70% of our business comes from products and capabilities that are developed internally; perhaps 30% comes from things that are acquisitions or spin-ins or other form of innovation, so we have a good, healthy balance between internal and external innovation that we blend, and we have a good balance between disruptive and sustaining innovation. But one misconception that I have seen over the years is that the only way Cisco innovates is through, on the technology side, is through acquisition.
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