Cisco Earnings Preview: 5 Things Partners Need To Watch For In Q1

Earnings Preview: Security, Ericsson, China

A lot of questions will be answered during Cisco Systems' first-quarter fiscal year 2016 earnings report Thursday, Nov. 12. Can the networking giant achieve better growth in its core routing and switching business? Will its 70,000 channel partners benefit from its new partnership with Ericsson? Are Cisco's investments in security and China paying off?

The Wall Street consensus is for earnings per share of 56 cents, up from 55 cents from a year ago. Sales are expected to be $12.65 billion, compared with the $12.36 billion the San Jose, Calif., networking giant reported for its first quarter a year ago.

In the fourth quarter, Cisco posted earnings of 59 cents per share on a 4 percent increase in sales to $12.8 billion, which was above the 56 cents and $12.65 billion Wall Street consensus, according to Thomson Reuters.

Here are five areas channel partners and investors should focus on for the first-quarter earnings call.

Will Cisco Show Double-Digit Growth In The Security Market?

Cisco hasn't been shy about its bullish pursuit to try to make headway in the fast-growing security market. The company's security sales were up 4 percent in the most recent quarter to $464 million.

Cisco needs to show more dramatic security sales growth to catch up with industry leaders Palo Alto Networks and Check Point Software Technologies.

Palo Alto Networks in the most recent quarter reported a whopping 60 percent growth in sales to $284 million from a year ago. Check Point's sales in the most recent quarter, meanwhile, were up 9 percent year over year to $404 million.

During Palo Alto Networks earnings call CEO Mark McLaughlin revealed big customer wins against Cisco including a North American brokerage bank, where it replaced Cisco; a large utility company deal in which it won out over both Check Point and Cisco; and a government agency, where it replaced Cisco.

Partners should hope the networking giant reports better than 4 percent growth in security.

Will Routing And Switching Grow Significantly?

A big question for Cisco is will the networking leader see significant growth in its base of routing and switching business? Will emerging markets like the Internet of Things and an industry push to cloud increase the demand for Cisco hardware?

In its most recent quarter, the networking giant saw just a 2 percent increase in switching to $3.72 billion in sales, while routing rose just 3 percent to nearly $2 billion. Around 60 percent of its entire revenue for fiscal year 2015 – about $22.4 billion -- came from switching and routing.

The Ericsson Partnership

Cisco unveiled a blockbuster new partnership with mobile communications behemoth Ericsson focused on next-generation networking, but there has been no mention of how channel partners will play in the strategic alliance. This despite the fact that the two companies have been in talks for 13 months prior to the new partnership, which will result in Cisco paying patent licensing fees to Ericsson.

Cisco declined to address any specific channel benefit for its partners regarding its Ericsson partnership when contacted by CRN.

Jeff Spagnola, vice president of service provider sales at Cisco, said in an email, "The long-term opportunities for our partners is significant, especially as we work together to deliver differentiated solutions for service providers, enterprises, and consumers."

During Cisco's earnings call, Cisco CEO Chuck Robbins should specifically address how he thinks the company's 70,000 channel partners will benefit from the partnership either in the short or long term.

Will Cisco Show China Sales Gains?

For the past few years, IT vendors have complained that they have been shut out of China as the Chinese government pushed the country to buy local. A number of U.S. companies, including Cisco, are teaming with Chinese companies to make headway in the market. Cisco has said it will invest $10 billion into China in the next few years and recently formed an alliance with China-based server maker Inspur.

China sales were down 3 percent year over year for its fourth quarter 2015, although Robbins said it was, "actually the best performance we've had [in China] in eight quarters."

So if China sales even show any sort of year-over-year increase, even 1 percent, it will be a welcome sign for partners and investors.

Will Robbins' New Technology Bets Pay Off In Further Commercial Sales Growth?

One area to look at to see if the technology partnerships being forged by Robbins are paying off is in the commercial business. That business was up 11 percent in its fourth quarter with a 20 percent increase in the U.S. commercial business.

Robbins has said he wants Cisco to create technologies and channel partners to sell solutions that fix businesses problems.

"The key is that we have really shifted both our solutions and our technology as well as our selling motion and services capability to be much more tightly aligned with how the technologies align with our customers' business issues," said Robbins during its recent earnings call.

If Cisco reports another double-digit growth in its commercial business, solution providers should gain a wealth of confidence that Robbins' goal of creating technology specifically around solving business problems is working.