Cisco’s Soaring Profits a Sign of Better Times

Cisco is hinting that a sharp recovery in the IT market may be on the horizon as its quarterly revenues increased 5 percent, beating expectations, and profits soared a whopping 44 percent.

The strong quarterly financial results shows Cisco’s efforts to refocus the company on core enterprise technologies, including networking, virtualized data centers, cloud computing and security, are paying off. It’s also a positive indication that Cisco’s partner-led channel strategy is opening new opportunities and closing net-new sales.

“In terms of the future, we are making solid progress towards our goal of becoming the #1 IT company in the world. 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. Our customers already understand that Cisco has the architectures, solutions and services to best help them deliver the business results they need and we are honored to work with them and serve them each and every day,” said CEO John Chambers, in a statement.

For much of the last two years, Cisco has been sharpening its focus, shedding consumer products such as the Flip video camera, the CIUS tablet and Umi home video conference system. Last month, Cisco sold its last major consumer brand, Linksys, to Belkin for an undisclosed amount.

While Cisco is hinting that government and enterprise spending is behind its surge, it’s also benefiting from a one-time tax incentive worth nearly $1 billion; roughly one-third of the profit posted.

Even removing the tax break from the profit, Cisco’s quarterly earnings remain impressive where rival vendors, such as Hewlett-Packard and Juniper Networks, struggle to maintain pace. HP, in particular, noted a 7 percent drop in networking equipment sales during its last quarterly report.

Part of its new focus, the “Internet of Everything,” Cisco has been on a buying spree. In the last quarter, Cisco used its treasure chest to acquire new enterprise technologies such as BroadHop for carrier management, Cariden Technologies for network planning, Cloupia for data center network management, and Meraki for midmarket cloud networking.

Is Cisco a bell weather for the rest of the IT marketplace and channel? It’s had good quarters since its 2011 restructuring, as well as a few subpar periods. The IT market has been steadily – albeit slowly – improving since the 2008 recession. While many vendors and solution providers are doing well, the rate of growth and profitability are under pressure as services and new technologies disrupt traditional revenue and business models.