Cisco: Storage Stars in Earnings

Storage starred in Cisco's robust earnings report last night. (See Cisco Reports Q2.)

"Storage led the way in advanced technologies, with revenues growing over 45 percent year over year," said Cisco CEO John Chambers on last night's call.

That figure contrasts with Cisco's mid-teens storage growth reported last quarter. (See Cisco's Storage Slows.)

Still, at least one analyst doesn't read too much into the storage growth figures. "We estimate Cisco's storage business reflects ~$115M in total revenue, which would imply a sequential decline," notes Aaron Rakers of AG Edwards in a note to clients today. Rakers thinks Cisco's storage figures hint that Brocade and McData may have been able to retain customers up to their merger.

It's tough to tell. While Cisco notoriously won't break out specific storage figures, Chambers was clear that storage accounted for the fastest growth in the company's most profitable division, the so-called "advanced technologies" group, which includes areas the company has earmarked as potential billion-dollar businesses. Other group members include wireless, home networking, security, and "unified communications," or enterprise telephony."Advanced technologies revenues are now becoming larger in terms of their total contribution to our top line than even routing is," Chambers asserted. He boasted that Cisco's quarterly figures validate its corporate strategy, which includes the corporate network as "the platform for all forms of communications and IT."

Advanced technologies accounted for roughly 23 percent of Cisco's overall quarterly revenues, which were $8.4 billion for its second quarter 2007. The quarter ended January 27. Net income was $1.9 billion, or 31 cents per share, up 41 percent since last year's second quarter.

The above figures, however, include revenue from Cisco's purchase of Scientific Atlanta in April 2006. Without Scientific Atlanta (SA), Cisco's overall revenues were $7.8 billion for the quarter, roughly 18 percent of which -- about $1.4 billion -- comprised non-SA revenues from advanced technologies.

Without the SA figures, Cisco's overall revenue growth was 16 percent year on year. Without SA, advanced technologies grew 23 percent year on year.

Cisco is guiding investors toward 19 percent to 20 percent year-on-year growth next quarter and 14 percent to 15 percent year-on-year growth for the fourth quarter.One concern of investors is Cisco's report that spending from enterprise customers, which represents 45 percent of Cisco's overall customer base, slowed to "low double digits" in the quarter, compared with "high to mid teens" during the prior six quarters.

The slowdown doesn't concern analysts at UBS investment research, who had this to say in their note today: "US Enterprise was the one weak spot, but we believe this will rebound in the future as our VAR surveys do not suggest any change in the positive Enterprise spending environment."

Mary Jander, Site Editor, Byte and Switch