Cisco CEO Chambers Cautiously Optimistic About Tech Buying

By Jeffrey Burt  |  Print this article Print

The company saw strong revenue and income growth in the last quarter, but there are concerns about government sales and economies in Europe and China.

Cisco Systems CEO John Chambers has a feeling of "cautious optimism" heading into 2013.

Demand for the company's broad portfolio of products is showing signs of an upswing, parts of Europe seem to be coming around, South America continues to be an attractive growth area and Cisco is seeing strong revenue growth in key parts of its business, Chambers said Feb. 13 during a conference call with analysts and journalists after announcing Cisco's latest quarterly financial numbers.

"We're starting to see a slow, steady upturn in terms of [product sales in the] pipeline," he said during the call.

However, there are still signs of concern: Government sales continue to stagnate for some products, parts of Europe—still in the throes of a lengthy debt crisis—have yet to pick up demand, there is still softness in the China market and, generally, it is still a difficult global economic picture.

"We're seeing early signs of stabilization in government spending and over two-thirds of Europe, but I want to watch that for two or three quarters before I get really excited about it," Chambers said.

What Chambers says about how Cisco is doing matters to the industry, because of the size of the company and the broad range of its product portfolio that touches on everything from core data center technology to cloud computing to collaboration.

In Cisco's second quarter of fiscal 2013, the company saw revenue jump 5 percent from the same period in 2011, to $12.1 billion, and income spike 44 percent, from $2.2 billion in 2011 to $3.1 billion. For the current period, Cisco executives are predicting that sales will increase 4 percent to 6 percent, with revenue coming in between $12.1 billion and $12.3 billion.

During the call, Chambers said the company saw some gains in key areas in the last quarter. In networking switches, revenue grew 3 percent, thanks in large part to the company's Nexus line, which saw 20 percent growth. Cisco's wireless business saw sales rise 27 percent from the same period a year earlier, while security revenue edged up 1 percent.

The data center business—including the Unified Computing System (UCS) converged data center solution—saw revenue rise 65 percent. According to Chambers, there are now more than 20,000 customers for the UCS, which includes Cisco server, networking and software components, as well as storage offerings from EMC and NetApp, and virtualization technology from VMware.

The converged solution, introduced in 2009, signaled Cisco's expansion in the data center, moving beyond just being a networking technology provider to becoming more of a data center IT solutions vendor. The move has made Cisco one of the world's top sellers of blade servers, but also has changed the competitive field, turning such partners as Hewlett-Packard into larger rivals.

However, Chambers said the UCS and the accompanying Nexus switch products have been a key growth driver for Cisco, noting not only the increasing number of customers, but also the 3,000-plus channel partners that are selling the products.

Video also saw growth in the last quarter, with revenue up more than 20 percent, much of that on the strength of Cisco's $5 billion acquisition last year of NDS Group. NDS made video software and security solutions that enable service providers and media businesses to bring video to a host of devices, and Chambers said it has been key in helping Cisco expand its Videoscape offerings.

Cisco has aggressively pursued acquisitions—particularly smaller companies that help fill niches—as it looks to bolster is wide range of offerings. Cassandra Mooshian, an analyst with Technology Business Research, said she expects Cisco to continue its rapid pace of acquisitions, particularly in the software field as the company works to bulk up its Open Network Environment (ONE) strategy in the burgeoning software-defined networking (SDN) arena.

"The firm is ramping up its acquisition activities to gain a stronger foothold in fast-growing technology markets such as cloud and mobility," Mooshian said in a research note. "We further believe the firm will leverage these acquisitions to generate more services revenue by bundling capabilities with Cisco's services offerings to create value-added offerings."

She pointed to two acquisitions that closed in the last quarter—Meraki and Cariden Technologies—and the announcement in December of its intent to buy BroadHop for network policy management software. Meraki brought with it technology to help in such areas as cloud networking, while Cariden will add to the ONE strategy.

Originally published on www.eweek.com.