Cisco Q1 Beats: Data Center Thriving, Collaboration Still Struggling6:21 PM EST Tue. Nov. 13, 2012
Cisco emerged from its fiscal first quarter with solid growth in both sales and profit -- proof positive, according to CEO John Chambers, that Cisco has righted its ship and is performing well despite continued challenges in key markets like the public sector.
On a conference call Tuesday to discuss Cisco's results, Chambers said Cisco is well aligned to meet market transitions such as mobility, cloud and software-defined networking head-on. The company has continued to manage well through a tough economic environment, he said, which is a testament to how Cisco doubled down on operational excellence during its global restructuring last year.
For its fiscal first quarter ended Oct. 27, Cisco reported $2.1 billion in profit, an 18 percent gain over the $1.8 billion in the year-earlier quarter. Revenue hit $11.9 billion, a 6 percent increase from the first quarter a year ago. Both results were ahead of analyst consensus estimates.
Chambers reiterated several points made during a recent interview with CRN, including that Cisco has designs on becoming the No. 1 IT company in the world and that thanks to its hardware, software, ASICs and services, it can provide next-generation data center and network infrastructure more effectively than any of its competitors.
"You can give us grief for a lot of things," he later told analysts during the Tuesday call. "But we do not miss market transitions."
In the quarter, Cisco saw significant gains in security, up 6 percent, wireless networking, up 38 percent, and data center, up 61 percent, and it also saw relative stability in switching and routing revenue, both down 2 percent year-over-year. Of Cisco's major product segments, only collaboration, which includes unified communications (UC) and telepresence, continues to be a sore spot, having declined 8 percent in the quarter.
"We need to do better in collaboration," Chambers said, noting that Cisco recently hired a new SVP-level executive, Rowan Trollope, to run that business, where Cisco is especially weakened by slow telepresence sales to federal government customers.
"Collaboration is one of those areas where people take their foot off the gas and watch," Chambers said of the economic climate, noting that "our peers are seeing that as well."
Cisco has already done a better job getting its various collaboration businesses under a single engineering leader, and Chambers said Cisco would be "all over this, but we anticipate it being a tough battle especially if we don't see the economy pick up."
Other areas are far stronger, Chambers noted. In data center, especially, Cisco is thriving behind its Unified Computing System (UCS), which Chambers said is actually pulling through sales of its communications products for the first time.
"That's especially important for how CIOs view Cisco as an IT player that also does communications," he said, noting that Cisco holds a No. 2 position in x86 blade server market share in the U.S., a No. 3 position in worldwide x86 blade server market share and a No. 4 position in the overall server market.
NEXT: Cisco's Services, Other Areas To Watch
During the Tuesday call, Cisco's Chambers also highlighted the gains made in the company's services business, which has been an area of focus for Cisco partners this year behind Cisco's new Services Partner Program (CSPP).
Cisco services revenue has seen a compound annual growth rate (CAGR) of 12 percent over the past decade, according to the company, which Cisco CFO Frank Calderoni said will continue to invest in services automation and considers the services business -- particularly advanced services -- a strategic asset.
In Cisco's breakdown by geographic region, total worldwide year-over-year product orders were flat. Americas was up 2 percent with gains of 13 percent in U.S. service provider, 9 percent in U.S. enterprise and 5 percent in U.S. commercial/SMB, but it posted a decline of 15 percent in U.S. federal government.
Cisco guided to revenue gains of between 3.5 to 5.5 percent for its fiscal second quarter, roughly in line with a 4.7-percent analyst expectation. Cisco closed the first quarter with 72,360 in total headcount, slightly less than the previous quarter.
Calderoni added that Cisco's traditionally brisk pace of M&A is back. Cisco closed a blockbuster acquisition of NDS during the first quarter, and grabbed smaller companies like vCider and ThinkSmart. Watch for Cisco to be active with acquisitions, Calderoni said, particularly smaller, tuck-in-style deals.
PUBLISHED NOV. 13, 2012