Cisco sales tick up, CEO Robbins bullish on data center, security, collaboration

Revenue up 1%, net income down 4%

Cisco announced Wednesday that it eked out 1% revenue growth in its fiscal first quarter, compared to the same quarter last year, in what CEO Chuck Robbins described as a “challenging global business environment.”

Total revenue for the quarter, which ended October 29, was $12.4 billion. Net income was $2.3 billion, off 4% year over year.

Switching, which represents about 30% of the company’s sales, was down 7% in the quarter compared to last year. In an earnings call with financial analysts, CFO Kelly Kramer said the softness was in campus switching, which is two-thirds of the total switching business.

Asked by analysts if this was a byproduct of macroeconomic trends or a product portfolio issue, Kramer chalked it up to the former, saying the company is confident of its portfolio and expects sales to pick up when spending increases.

In a post-call interview with Robbins, I asked if some of the softness in switching could be contributed to interest in a shift to open networking – using open source switching code on commodity hardware, a strategy being pursued by web scale players and some of the largest enterprises – Robbins said, “our enterprise order growth was up 5%, so I think on a global basis our enterprise business showed reasonable strength.”

Regarding open networking in particular, he said: “If you look at what customers are trying to do with technology today, they are solely interested in how they create an environment that allows them to move with greater speed to meet the demands of the business and the competitive threats and competitive opportunities out there. And the whole notion of disaggregation of hardware and software, unless it contributes to one of those business outcomes, I don’t see a lot of business customers looking to do that.”

The other hunk of the switching business is in the data center, and that is going great guns. Robbins said sales in the quarter were up 33%, driven by the success of the company’s Application Centric Infrastructure (ACI), Ciscos’ Software Defined Network architecture.

The brightest spot on the balance sheet this quarter was security, where sales climbed 11% to $540 million, making it more than a $2 billion business segment for Cisco. Robbins said “we’re the only $2 billion security business that is growing at double digits.”

Collaboration is another business segment showing great promise, Robbins said. Although sales in the quarter were down 3% to about $1 billion, he said that was largely because the first quarter last year was up 17%, which skews the comparison. He was “incredibly pleased,” he said, with the entire Spark platform, the company’s cloud-based collaboration tool, and the shift to a cloud-delivered architecture.

“The collaboration portfolio is a key representation of the business value our customers are trying to derive from their technology,” Robbins said. “You see customers taking that portfolio and pushing expertise out into branches, retail outlets, etc.”

In terms of future growth, Robbins said “the real opportunity for us is to take that same policy/ enterprise management/security capability that we’ve delivered with the Meraki platform [the company’s cloud-managed WiFi system] and extend that capability across the balance of our routing and switching portfolio. That’s what we’re going to focus on over the next year or two.”

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