Cisco Systems Inc. produced a mostly positive earnings report for its 2013 first quarter and fiscal year report, exceeding Wall Street predictions even amid lowered expectations. While revenue and net income saw considerable gains, the places in which Cisco reported a loss are a testament to the changes happening within the company and across the IT landscape.
For its first quarter, Cisco’s revenue rose 6 percent year over year, up to 11.9 billion — also up from last quarter, where Cisco reported 11.7 billion in sales revenues. With analyst predictions aiming for an adjusted revenue of $11.78 billion, the market was pleased. Stockholders saw Cisco’s price rise 7.54 percent in after-hours trading, which at the time of this writing places Cisco stock at just above $18.
First quarter net income also jumped, with a growth of 18 percent year over year to $2.1 billion. This is up from $1.8 billion the previous year and $1.9 billion the previous quarter. Cisco US enterprise order growth increased 9 percent, US service provider orders rose 13 percent and the US commercial market hovered around 5 percent.
On a call discussing the earnings, Cisco CEO John Chambers was optimistic, but noted there were challenges in this “macroeconomic environment.” Year-over-year revenue highlights include a 38 percent growth in wireless solutions, a 61 percent spike in data center solutions, a 6 percent bump in security solutions, a 12 percent jump in services and a sizable 30 percent rise in service provider video services. Cisco was careful to note that 20 percent of that rise in video services is directly accountable for the recent NDS Group Ltd. acquisition, which closed yesterday.
Cisco took some interesting hits, too. Switching and NGN routing both dropped 2 percent, and collaboration technology dropped 8 percent. Chambers was hesitant to call these major losses, pointing to overall growth from a “strong Q1 last year” as reason for the seemingly sizable drop.
It’s clear Cisco is a company in transition. Chambers mentioned mobility, the bring-your-own-device trend and the “Internet of things” quite a few times, stressingthe network “has never played a more central role” in the communication and development of more advanced infrastructure. Cisco’s attitude towards this market segment is that they are “well-positioned for the explosion of mobility, BYOD and…WiFi,” which will continue to “fuel growth and play to [Cisco's] strengths.”
But when Chambers was pressed about the drop in collaboration, he noted that economic malaise has made businesses “take the foot off the gas and watch” before investing future in collaboration technology. Despite a number of big announcements recently, the collaboration unit is in the midst of some turmoil as former collaboration technology unit SVP O.J. Winge was tossed late last week in favor of former Symantec Corp. exec Rowan Trollope, who now leads the troubled group.
Chambers did provide self-criticism, noting Cisco would double down on collaboration, tying together WebEx with the TelePresence platform to ideally create a single call manager, which Chambers joked, would be “CEO-idiot-proof” and easy to use.
In regards to the services market, Chambers noted, “as the market moves to a more architectural play in soling business problems … services from Cisco [and its partners],” will likely rise even though “getting there is hard.” Cisco predicts a three to five year window that will see sizable growth in “new areas.”
This time frame may be a bit too long. While Cisco’s earnings are positive, there are no outrageous gains to suggest big momentum. Amid massive layoffs and internal cost-cutting measures (even killing off the Flip and the Cius tablet), Cisco has certainly become more agile. But, these first quarter gains must be the start of a trend, not a meandering plateau.
If Cisco is to make the best of their cost-saving efforts, this new found agility and flexibility must be used to develop competitive services solutions that help build the solution provider community and maintain Cisco’s profitability. Failure to execute will result in a waning influence and relevancy for Cisco in the IT industry and with its channel.
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