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Cisco's Future Focuses On Cloud, SDN

Cisco posted record revenue for the eighth consecutive quarter even as it redefines its business for a future of virtualized networks and the Internet of Everything.

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Cisco reported on Wednesday that its earnings grew 44% during the second fiscal quarter, which ended Jan. 26. Despite ongoing restructuring efforts and the perils of a fragile global economy, the San Jose, Calif.-based networking giant brought in $12.1 billion in revenue, a 5% year-over-year increase.

Having slightly exceeded analyst expectations, the company must now maintain momentum as it evolves from a networking hardware company to a supplier of cloud management platforms, video communication tools and other emerging IT services.

In a statement, Cisco CEO John Chambers pointed out that Cisco has achieved record revenue for eight consecutive quarters. "… we are making solid progress towards our goal of becoming the #1 IT company in the world," he said. "As new markets grow and are created, such as the Internet of Everything, it's very easy to see how the intelligent network is at the center of that future."

During the company's earnings call, CFO Frank Calderoni said data center resources and cloud computing tools were major drivers of growth. The company's revenue growth retreated 5% in recession-plagued Europe but grew 9% in the Americas and 8.4% in the Asia-Pacific region. The company's successful Wall Street showing also benefited from a $926 million tax settlement with the IRS.

[ The Internet of Everything depends on smart development. Read The Internet Of Pointless, Perilous Things. ]

The physical routers and switches that have traditionally supported Cisco's business are currently giving way to virtual replacements, and Cisco has taken aggressive steps in recent months to keep its portfolio ahead of the technological curve. As recently as last fall, the networking giant's customers were expressing concern over the company's complicated products and unclear corporate agenda. The outlook has grown rosier, though, as CEO Chambers has forged a clear emphasis on the enterprise.

Cisco's progress has stemmed in part from housecleaning, such as its shedding of Linksys and other consumer-oriented distractions. A proactive attitude toward acquisitions, however, has been important, too. Since October, Cisco has purchased Cloupia and Meraki to enhance its cloud management tools, vCider and Cariden to build its software defined networking platform, and BroadHopto expand its network programmability expertise.

The company also has produced tools that allow wired and wireless networks to be managed from a single console; has invested in the promise of pervasive sensing and the Internet of Everything; and has established services based on location-based analyticsand network monetization.

In an email interview, Scott Dennehy, senior analyst at IT research firm TBR, said Cisco had a "solid quarter." He praised the recent acquisitions for reaffirming the company's core business and singled out software-defined networking as an area of potential growth. He noted, however, that this technology, which abstracts the physical components of a network to a virtual control panel, could present challenges because it "threatens" an existing customer base that has invested time and money in older hardware. Nonetheless, Dennehy foresees growth in software-defined networking promising to Cisco's consulting and system integration verticals.

During the earnings call, Cisco executives forecast that sales will increase between 4% and 6% during the current quarter.

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Drew Conry-Murray
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Drew Conry-Murray,
User Rank: Strategist
2/16/2013 | 12:19:00 AM
re: Cisco's Future Focuses On Cloud, SDN
I think Cisco is in step with its customers rather than being behind the market. SDN as a concept is evolving quickly, but uptake in actual data centers is slow. And Cisco has an advantage that startups like Big Switch and Nicira don't when it comes to northbound APIs, which will allow third-party applications to take advantage of network programmability. Given Cisco's huge market share, developers will certainly include Cisco in their application plans. Of course, given that Nicira now belongs to VMware, it too will be a prime target for third-party apps.

Drew Conry-Murray
Network Computing
cbabcock
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cbabcock,
User Rank: Apprentice
2/15/2013 | 8:30:54 PM
re: Cisco's Future Focuses On Cloud, SDN
Cisco is behind start-ups like BigSwitch and Nicira as well as VMware in concluding that virtualized networking is a primary building block of the future data center. Does that mean it's behind the market, or merely in step with its own customers? Its results have not punished it for being on the trailing edge of this trend so far. Charlie Babcock
Drew Conry-Murray
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Drew Conry-Murray,
User Rank: Strategist
2/15/2013 | 2:04:04 AM
re: Cisco's Future Focuses On Cloud, SDN
SDN and network virtualization are going to make the data center network market more competitive. Startups and established vendors alike are challenging Cisco with disruptive technologies. In particular, VMware looms as a competitor. It has both VXLAN and Nicira as options for network overlays that, while not marginalizing the physical network, create a new set of interfaces for applications and network services. Cisco's SDN strategy is trying to strike a balance between preserving the margins it can command for its ASIC-powered switches and routers while also trying to bring more automation and scalability to the network. It's still early days in the SDN market in terms of customer adoption, so the company has an opportunity to fine-tune its strategy and weild its considerable influence in the data center, both with customers and third-party vendors, to its advantage. It's interesting times in networking.

Drew Conry-Murray
Editor, Network Computing
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