Cisco: Cautious but Confident

Cisco came out fighting at its financial analyst conference Thursday, talking up its strengths and prospects as it tempered its sales growth prospects by a few percentage points.

The vendor shocked the industry recently when it reported slightly disappointing fiscal first quarter numbers and issued a profits warning for its fiscal second quarter, which ends in January 2014. (See Cisco Set for Sales Slump.)

Cisco Systems Inc. CFO Frank Calderoni told the conference that the numbers were "clearly not acceptable," and were the result of business pressures in emerging markets, the impact of product transitions as new platforms were brought to market, and "some challenges in the service provider market."

Those cumulative challenges and macro economic conditions have forced Cisco to revamp its sales growth predictions for the next few years from 5% to 7% compound annual growth rate (CAGR) to 3% to 6% CAGR over the next three to five years.

Does that mean other vendors will also feel general pressures in the same way? Cisco tends to think so but that view is not shared by everyone. CEO John Chambers "says that the company sees macro trends, both positive and negative, one to two quarters before its competitors. We do not necessarily agree," stated MKM Partners analyst Mike Genovese in a research note, noting that other vendors such as Alcatel-Lucent, Ciena Corp. (NYSE: CIEN), and Juniper Networks Inc. appear to be faring better in emerging markets.

Cisco, though, is still expecting growth, and Chambers is confident that service providers have faith in Cisco to deliver what they need to counter their major challenges, many of which are around operating expenses. "The takeaway here is, this market is set up for us -- it will be an architectural play," noted Chambers.

That "architectural play" hinges around Cisco's take on software-defined networking (SDN) and its new routing platforms. (See Cisco Asks the Killer SDN Question, Cisco's ACI Gets Physical With SDN, and Cisco Unveils Application-Centric Infrastructure.)

And it's clear that Chambers, at least publicly, believes a hard push on the capabilities of its new products means Cisco will not lose out to its rivals. He told the conference that Cisco wasn't trying to be a systems integrator or trying to "separate the data plane from the control plane," but instead focusing on how to help network operators deliver applications and services. "Are you going to bet your future on a Juniper or Alcatel or Huawei? That's a battle we should win almost every time," stated the CEO.

— Ray Le Maistre, Editor-in-Chief, Light Reading

DOShea 12/14/2013 | 10:14:48 AM
It's not just us, really.. ...is what Cisco is saying. Analyst don't agree We'll know the next couple months--as others report Q4 2013 earnings--how right or wrong they are.
sam masud 12/13/2013 | 3:51:28 PM
Hype+ Sounds like sales/marketing hype from Mr. Chambers, who understandably has to defend Cisco's switch-router business or lose some serious revenue. At the same time, while it's too early to say how how SDN will play out, there is a clear logic to disaggregating the forwarding and control planes. Add to that bare metal swiches and a Linux OS, and you have a strong capex proposition and a more competitive environment. The times seem to be changing...
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