Cisco Earnings Preview: 5 Things Partners Need To Watch For In Q2

Earnings Call

Cisco shares plummeted after the company's weak second quarter guidance during its first-quarter earnings call in November. The networking leader is projecting revenue growth of only zero percent to 2 percent, with earnings per share at just $0.53 to $0.55.

Many questions that partners may have should be answered during San Jose, Calif.-based Cisco's second-quarter earnings call Wednesday. Will Cisco's routing business bounce back after an 8 percent decrease in the first quarter? Will Cisco CEO Chuck Robbins address the potential impact of telecom heavyweights joining Facebook's Open Compute Project? And will Cisco shares continue to slide in 2016?

CRN discussed the five biggest areas solution providers should be focusing on during Cisco's earnings call at 4:30 p.m. Eastern Feb. 10.

Will Routing Woes Continue?

Although the networking giant had an overall solid performance for its first quarter earnings in November, one major area of concern was Cisco's routing business, which decreased 8 percent year over year to $1.8 billion.

CEO Robbins said the issue was simply timing. "We do expect that to bounce back," said Robbins during the earnings call. Routing and switching accounted for nearly 60 percent of its total sales -- about $22.4 billion -- for fiscal year 2015.

Partners are hoping routing stabilizes and returns to growth as it offers high margins for the channel.

"Routing is easily one of Cisco's bread and butter, and VARs want to see that back in the green," said a top executive from a solution provider and Cisco Gold partner, who did not wish to be identified. "They say they're going to make a solid comeback this quarter and obviously we're all really hoping that happens."

CEO On Facebook's Open Compute Project

Cisco partners are keeping a keen eye of Facebook this year after telecom giants like AT&T, Verizon and Deutsche Telekom signed on to back Facebook's foundation for open-source data design seeking to bring low-cost data center gear mainstream.

Partners say they're not worrying about Facebook's Open Computer Project (OCP) in 2016 as solution providers believe it will take a few years for cheaper white-box, bare-metal switches to really start becoming prevalent in the carrier market.

In a statement to CRN, Cisco said if carriers decide to go the open-source route, Cisco sales wouldn't be impacted.

"For example, OCP has been helping Web scale companies such as Facebook and Google develop their own switches for quite some time, but Cisco's sales to these types of customers continue to increase," said a Cisco spokesman in an email. "Open standards, open-source and other open initiatives are only becoming more important to Cisco."

$1.4 Billion Jasper Acquisition

Partners should listen to hear Robbins weigh in on the $1.4 billion purchase of Internet of Things (IoT) provider Jasper Technologies. The CEO has underscored IoT being the next big sales driver for Cisco and its channel community.

Partners say they'll be listening to any new details on the implementation of Jasper IoT technologies and if Robbins hints at any other IoT acquisitions in 2016.

"Everybody was onboard with the Jasper purchase -- great buy, right up their alley," said the Cisco Gold partner. "I want to hear if Chuck has to say anything about other maybe possible [IoT M&A] this year."

Next-Generation Switching

Switching revenue was up 5 percent year over year, to $4 billion, for Cisco's first quarter. The company's data center switching portfolio, which consists of its Nexus product line and Application Centric Infrastructure (ACI), is running at a $2 billion run rate -- according to Cisco -- with more than $500 million in revenue for the first quarter. "This performance is much stronger than our competitors, who claim they are outpacing and outperforming us," said Robbins during the earnings call.

This is where Cisco could be hit the most, as switching represents the largest portion of product revenue. Partners need to pay close attention to see if Cisco's positive switching sales slip as cloud adoption continues to increase.

Cisco's 2016 Cold Stock

This year didn't started off with a bang for Cisco shares. The networking giant's shares dropped from around $27.50 at the end of 2015 to hovering at about $22.50 in February.

Compared with the share price plunge after the company's last quarterly earnings call, partners are hoping to see the opposite occur Wednesday.

In a research note Monday, Wall Street analyst Rajesh Ghai of the investment firm Macquarie Group upgraded his appraisal of Cisco's performance from "Underperform" to "Neutral" -- saying "significant further downside is unlikely."