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Data Center

Cisco Sanguine About Data Center Success

It is fashionable to dismiss Cisco as a technological dinosaur on its way out. Even if true -- and let's flog this metaphor to the end -- Cisco's Cretaceous ain't over yet, and some dinosaurs did evolve. (Okay, into chickens. But still.)

In its first quarter of 2016, Cisco Systems Inc. (Nasdaq: CSCO) is still profiting from its hybrid cloud approach, CEO Chuck Robbins pointed out. Customers "see workloads that make tremendous sense to be in the public cloud, and then their mission-critical high-performance applications that they will continue to run in a private cloud. And we believe that we can provide the bridge for those customers," he explained.

The company's data center business had 140% growth year over year, with sequential growth of 26%. The operation grew to $500 million this quarter; which Robbins pointed out is a $2 billion a year run rate.

"That's better than our competitors, who claim they are outpacing and outperforming us," Robbins said.

Data center business for the company's next-generation switching products is growing rapidly. Robbins said Cisco expects the "inflection point" -- the point where it will begin selling more of the next-gen switching than legacy products -- will come sometime in the second half of its fiscal year.

Companywide, order growth was lower than guidance suggested. Robbins said that was due to macro and currency impacts primarily outside the US (which is to say, the dollar is strong), but he insisted the company did well despite strong headwinds.

In addition to strong growth in the data center business, Cisco introduced more products, and "internal startups" developed products quickly. With smaller, more agile teams, Robbins said he expects the stream of new products to keep flowing. "We've got new product introductions coming out across security, data center, as well as routing and others, so there's probably more innovation in the pipeline than we've seen in quite a while," Robbins said.

Meanwhile, the company is growing its software-as-a-service (SaaS) business through acquisitions, CFO Kelly Kramer added.

The work to date all added up to first-quarter revenue of $12.7 billion, up a half billion from the like period a year ago, and net income was $2.4 billion, up from $1.8 billion in the first quarter of 2015. Switching revenue was up 5%; routing was down 8%.

Switching was driven by data center business. "In the Nexus 9000 we added another 900 customers in the quarter. And we're now over 5,000 customers with our Nexus 9000, and it's the fastest-ramping data center product that we've ever had," Robbins said.

Breaking it down by client segment, revenue was up 7% in the commercial sector, up 6% in service provider, and down 3% in enterprise.

Asked if Cisco needs to counter Dell Technologies (Nasdaq: DELL) with its intended purchase of EMC with an acquisition in storage IP of its own, Robbins deflected, saying Cisco is happy with its partnerships with IBM, Hitachi, EMC, NetApp and others, and if it needs to bring storage IP in-house, it can do so either through its own R&D, co-development, or with an acquisition. (see Dell Buys EMC for $67B in Biggest Tech Deal Ever.)

It's only been three days of non-stop coverage, but already everyone is tired of hearing about Cisco's tighter relationship with Ericsson -- analysts on the company's Q1 call asked not a single question about the hook-up. (See Cisco + Ericsson: Analyst Reactions.)

Robbins volunteered that the company expects that forging close ties with Ericsson will pay dividends especially in the service provider sector. With easily the most awkward sentence of the day, Robbins said, "Our customers believe that they're actually quite pleased with the partnership that we put together."

Sure, they believe they're quite pleased, but are they really?

Quotes from Cisco's Q1 conference call with analysts were taken from the transcript of the event provided by Seeking Alpha.

— Brian Santo, Senior Editor, Components, T&M, Light Reading

[email protected] 11/13/2015 | 7:34:43 AM
Belief system I believe it's unlikely that doubting customers would get a mention re Ciscosson.

On the dinosaur metaphor... most dinosaurs became extinct after a massive event wiped out their sustainable ecosyste. Hmmm...

 

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