Cisco Earnings: Carriers Cast Shadow Over Sunny QuarterCisco Earnings: Carriers Cast Shadow Over Sunny Quarter

Carriers were a dark spot on an otherwise bright quarter for Cisco, as the company reported revenues of $12.1 billion, up 5%.

Non-GAAP earnings per share grew $0.54, up 6%, according to third-quarter earnings reported after market close Wednesday. Revenues beat expectations by $30 million and earnings per share by $0.01. (See Cisco Reports $12.1B Revenue for 3rd Quarter 2015.)

But "volatility in service provider and emerging markets we have discussed in prior quarters continues," Chambers said. "Our service provider business remains challenged both globally and in the US." Service provider orders decreased globally by 7%, and by 17% in the US.

Also, orders from emerging markets were flat.

However, Chambers sounded an optimistic note.

"I believe we have organized well to capture more than our share in these markets and positioned ourselves for their inevitable upturns," he said.

For Q4, Cisco Systems Inc. (Nasdaq: CSCO) expects to see 1-3% revenue growth and non-GAAP earnings per share of $0.55 to $0.57, Chambers said, holding court on what's almost certainly to be his final quarterly earnings call.

Chambers last week announced that he's retiring effective in July, after 20 years as CEO. Chambers will be succeeded in the big chair by Chuck Robbins, current senior VP worldwide field operation and director. Robbins joined Chambers on the call. (See Cisco's Robbins to Replace Chambers as CEO and Chambers's Legacy: A Resurgent Cisco .)

The decline in the service provider business was driven by global service provider capex "under pressure" and industry consolidation. However, changes to the global service provider organization "are working, and we are very focused on growing our share of wallet," Chambers said. (See Troubled Cisco Looks to 'Bust Silos' .)

Much of the US service provider decline was driven by a single company. Excluding that service provider, the decline would have been 6% rather than 17%, Chambers said.

"At Mobile World Congress earlier this year, we issued announcements with over ten global service providers, including the launch of cloud VPN service with Deutsche Telekom, connected car service with AT&T, and a small cells solution for large enterprise deployments with Vodafone," Chambers said. (See Cisco Lands NFV Deals With DT, Telstra, Telecom Italia and AT&T Connects Cars & Trash Cans .)

Verizon tapped Cisco for a next-generation 100Gbit/s metro network in the US. "No one thought we were even in this game," Chambers said. Optical is a new market for Cisco. He credited Cisco's engineering reorganization, integrated architectures, engineering agility, speed of innovation and ability to partner with the customer. (See Ciena, Cisco Tipped for Verizon Metro 100G .)

Cisco is seeing growth in its SDN architecture, the Application Centric Infrastructure (ACI). Sales of the Nexus 3000 and Nexus 9000 grew 144%, giving Cisco more than 970 new Nexus 9000 customers and ACI customers in the quarter, for a total of 2,650. Nexus 9000 plus ASIC orders grew sequentially by 27%, "and we expect that sequential growth to accelerate in Q4," Chambers said.

Cisco's UCS data center servers are seeing more than $3 billion in revenue run rate, with more than 43,800 customers and the number of repeat customers growing 34% year over year. Cisco launched UCS in 2008, and is now market leader in UCS blades in the US and second worldwide, Chambers said.

Chambers also touted growth in cloud and collaboration -- two areas of interest to communications providers, as they drive network usage and present opportunities to partner to deliver services. Conferencing sales grew 11%, while billable WebEx users grew over 28% to more than 15 million.

Service provider video revenues declined 5%, with orders down about 20%. "We continue to focus on improving profitability in this business as we develop next-generation end-to-end video solutions combining hardware, software, and services," Chambers said. However, cloud is picking up. "Set-top boxes are tactical but cloud winning on video … is strategic to us," Chambers said.

Overall, with regard to service providers, "we'll turn that back positive," Chambers said.

Engineering agility will be a big help with that. The engineering changes made last year knocked down silos over 60 business units, Chambers said.

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Previously, developing a high-end product required 3,000 people and three to five years. But Cisco will develop a next generation of router products for the ten biggest Web 2.0 companies -- including Microsoft Corp. (Nasdaq: MSFT), Google (Nasdaq: GOOG), Facebook and Amazon.com Inc. (Nasdaq: AMZN) -- in less than 12 months with about 225 people.

Cisco has aligned its portfolio more to suit the needs of service provider customers, Robbins said.

Chambers also addressed a new acquisition rumor. "I wouldn't bet on the one you heard today," he said, referring to reports that Cisco planned to buy FireEye for $8 billion.

— Mitch Wagner, , West Coast Bureau Chief, Light Reading. Got a tip about SDN or NFV? Send it to [email protected].