Cisco Earnings Preview: Partners Seeking Hyper-Converged, Security Traction

Plenty Of Questions For Cisco

Channel partners are eager to see if Cisco CEO Chuck Robbins provides any insight on the networking giant's hyper-converged market entrance and if Cisco is continuing its security momentum during its third-quarter earnings report Wednesday. Solution providers are also watching closely to see if Cisco's switching and data center business have bounced back after a poor showing in February.

For San Jose, Calif.-based Cisco's fiscal third quarter, which ended April 30, the company was expecting to see growth of 1 percent to 4 percent year over year on non-GAAP earnings of 54 cents to 56 cents per share. Wall Street anticipated earnings of 55 cents per share and for revenue to have fallen about 1 percent, to $11.97 billion, compared with the same period a year ago.

Hyper-Converged/Nutanix Partnership

Cisco entered the hyper-convergence market in March with HyperFlex. The network leader recently told CRN that it has seen higher-than-expected customer interest in HyperFlex, which led to delays in shipping the product to partners for testing purposes.

Sources also told CRN this month that Cisco is in talks with hyper-converged startup Nutanix. Cisco, which tried unsuccessfully to acquire Nutanix last year, is reportedly discussing a strategic partnership in which channel partners from both sides can sell Cisco UCS servers with software from Nutanix.

"We think it's just a matter of time before Cisco buys either a Nutanix, or a SimpliVity, or a Springpath," said one top executive from a solution provider that partners with both Cisco and Nutanix, who declined to be named. "Any figures or wins or contracts around [HyperFlex] is something I think everybody is going to be listening for."

Security Surge

One of the bright spots for Cisco during its previous quarter was an 11 percent surge in security sales, which climbed to $462 million. Cisco's security deferred revenue also grew, by 26 percent.

"Cisco has made a huge investment in security. They've got a nice positioning statement now, good products and [are] beginning to execute on that strategy," said Phil Mogavero, vice president of Advanced Technology Group network solutions and regional chief technology officer at El Segundo, Calif.-based PCM.

Partners said they are hoping Cisco can maintain its security momentum by posting another solid growth quarter in security.

Storage Strategy

With the blockbuster Dell-EMC acquisition pending and Cisco's entrance into the hyper-converged market, partners are clamoring for more information from the vendor on its storage plan.

Cisco closed its Invicta storage business last year after a failed attempt to enter the storage market after its acquisition of Whiptail in 2013. Partners are urging Cisco to either acquire a company or invest in R&D around software-defined storage.

Data Center/Switching

In February, in its second-quarter earnings report, Cisco said it had a 4 percent decline in its bread-and-butter switching business as well as a 3 percent decline in its data center business. Cisco blamed the switching drop on "macro weaknesses" in its campus businesses.

As organizations start to adopt more software-defined networking and cheaper white-box, bare-metal switches, partners are keeping a close eye on Cisco's switching and data center revenues.

Mention Of Amazon, Google

Partners are looking for any mention of Cisco's plan to fight off the increased cloud competition from Amazon Web Services and Google parent Alphabet, which are looking to build telecom networks and services at a lower cost.

JPMorgan analyst Rod Hall this week said workloads are moving at a faster rate to Infrastructure-as-a-Service providers like AWS and Alphabet.

"A near-tripling of public cloud workloads represents a monumental architectural shift, which shows no signs of abating and is likely to create a major ripple effect across the entire technology landscape," wrote Hall in a JPMorgan report. "[We] continue to believe it represents material earnings risk for companies like Cisco."