Cisco Plans Software Surge

software communications

The expansion of Cisco's software business is slated as one of a dozen major projects that the company plans to tackle next year, said Cisco Chairman and CEO John Chambers Tuesday during a conference call to discuss the company's third-quarter financial results.

"I think you'll see us be very active with internal development start-ups, partnerships like with IBM and SAP, and you will see us active in the acquisition market as well," Chambers said of Cisco's software push.

Cisco's pending acquisition of on-demand conferencing vendor WebEx Communications, unveiled during the quarter, "was clearly a signal of our intention to continue to lead in [the communications and collaboration] market and to take advantage of some new models," said Charlie Giancarlo, chief development officer at Cisco. The San Jose, Calif.-based vendor has already said it intends to keep WebEx's subscription model in place. "When people talk software does that mean shrink-wrapped software or does that mean business process? Increasingly business process tools are being delivered in very different ways, obviously not just the shrink-wrapped software methodology."

Giancarlo said the majority of Cisco's engineering resources are already focused on software.

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"Cisco is really a software company wrapped up in steel clothing. About 65 percent of our engineers within the company are software engineers, and we deliver products with a very high degree of software functionality. As we go forward that is going to increase in very significant ways," Giancarlo said.

Chambers said Cisco currently has "a high degree of confidence in our strategy and business momentum," which for the past few years as focused on pushing the network as a platform for communications.

"In addition, I would not underestimate the potential that collaboration, enabled by Web 2.0 technology, could have on Cisco's and the entire IT industry's growth over the next five to 10 years," Chambers said. He also once again pointed to video as a potential "killer app."

For the quarter ended April 28, Cisco reported earnings of $1.87 billion, or 30 cents per share, up from $1.4 billion, or 22 cents per share, for the same quarter a year ago.

Excluding charges, Cisco earned $2.11 billion, or 34 cents per share. That beat financial analysts' expectations by a penny, according to Thomson Financial/First Call.

Revenue for the quarter climbed to $8.87 billion, up from $7.32 billion the same quarter a year ago.

For the fourth quarter, Cisco expects to report revenue of $9.2 billion to $9.3 billion, representing 15 percent to 16 percent growth year over year. That excludes its pending acquisitions of WebEx and security vendor IronPort Systems, which are both scheduled to close during the quarter and could contribute an additional $50 million in revenue to the quarter, said CFO Dennis Powell.