Cisco CEO John Chambers' parting gift: a better-than-expected Q3

Switches and routers still the growth engines

By Richard Chirgwin

Posted in Networks, 14th May 2015 00:58 GMT

Outgoing Cisco boss John Chambers is smiling after delivering an April quarter that's 5.1 per cent up over the April 2014 quarter in turnover and 11.7 per cent up in profit.

The result would have been even better, but for ongoing weakness in the service provider market (down 7 per cent). The enterprise, public sector and commercial lines of businesses all grew by 6-7 per cent.

Sales to the US government were up 24 per cent year-on-year (dominating total US public sector growth of 10 per cent), and US enterprise sales rose by 21 per cent. The EMEA market was weak at 2 per cent year-on-year (dragged down by Russia), while Asia managed to reverse its China-driven decline and turn in 1 per cent growth.

Chambers said without China, the Asia-Pacific would have grown by 8 per cent, but long-term improvement behind the Great Firewall would have to wait until “our governments get on”.

Chambers attributed the slow service provider market to capex being under pressure and industry consolidation. This is most pronounced in the US, where service provider revenues declined 17 per cent.

He doesn't reckon telcos' capex will recover any time soon, but the organisational changes incoming CEO Chuck Robbins made (and one of the reasons he got the job, Chambers added) will let the Borg assimilate a bigger share of the service provider wallet.

In response to the threat posted by the emerging white-box market, Chambers told the earnings call that Cisco has “moved from selling boxes … to partnering with customers on their outcomes”.

However, iron remains the Borg's backbone. Switching brought in 29 per cent of revenue (up 6 per cent year-on-year), routing 23 per cent. The Nexus and ACI ranges have started to hit their straps, rising 144 per cent year-on-year, and Nexus 9000 and APIC orders rose 27 per cent, which the company says should keep the segment growing in the next quarter.

While the data centre market only represents 7 per cent of Cisco, Chambers said he was pleased with the performance of the company's UCS range.

“UCS momentum continues with over $3 billion in revenue run-rate, with over 43,000 UCS customers,” he said.

Chambers claimed “the innovation UCS brought to the market – an architecture that converges networking servers and storage” has vaulted the Borg from “nowhere” to “the market share leader in x86 blades in the US, and the number two player worldwide.”

He also cited good growth in the VCE and FlexPod lines, and a ramp up in the more recent partnership with IBM, the VersaStack UCS/Storwize combo.

Acquisitions in the security market are also paying off, with that segment showing 14 per cent year-on-year growth and orders also rising.

Although the results beat analyst forecasts, Cisco's shares closed marginally down on in after-hours trading. The share market story was worse for FireEye, whose price took a 3.5 per cent dive because Chambers said no, Cisco isn't going to acquire the security company. ®

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