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Cisco SDN strategy helps lift revenue, profits

Cisco SDN strategy contributes to 27% jump in Nexus 9000 orders and an increase in the number of Application Centric Infrastructure (ACI) customers.

Cisco reported higher sales in its software-defined networking products, as outgoing CEO John Chambers declared critics "entirely wrong" about the company's ability to adapt to the market shift away from hardware.

Cisco reported May 13 that orders for the Nexus 9000 product line increased 27% from the second to the third fiscal quarter that ended April 25. The number of Nexus 9000 customers increased by 974 to 2,655.

"We expect that sequential growth to accelerate in Q4," Chambers said.

Nexus 9000 switches are the native platform for Cisco's software-defined networking architecture called Application Centric Infrastructure (ACI). The number of ACI customers increased by 231 in the quarter to 585. Cisco started shipping ACI technology last year.

ACI is Cisco's answer to companies like VMware that provide a software-centric approach to networking. Cisco's architecture ties software to its hardware, while VMware's rival NSX technology runs on any hardware.

All this garbage about new players coming in and software coming in and white label [hardware] killing our approach was entirely wrong.
John ChambersCisco CEO

Overall sales of switches grew 6% year over year. Chambers bristled at an analyst's comment that much of the revenue increase was due to Cisco's poor showing last year, when overall sales fell for the first time in five years.

"All this garbage about new players coming in and software coming in and white label [hardware] killing our approach was entirely wrong," Chambers said during a conference call.

Cisco returns to stability

Overall revenue for the last quarter increased 5.1% year over year to $12.1 billion. Net income rose 11.7% to $2.4 billion. Analysts had expected revenue of $12.07 billion, according to a Thomson Reuters poll.

The increase in revenue and profit was an indication that Chambers had brought back stability from last year. The resurgence is expected to help incoming CEO Chuck Robbins, who takes over July 26. Robbins led global sales for Cisco.

The company reported progress in sales of its unified computing systems, a data center server that integrates computing, networking and storage resources in the same hardware. Cisco reported that the number of repeat UCS customers increased 34% in the quarter. More than 43,800 organizations use UCS servers, according to Cisco.

In 2014, Cisco revenue in the server market rose nearly 30%, higher than all its major competitors, according to IDC. The overall market grew 2.3%.

Revenue from wireless networking technology increased 9% in the quarter and security sales grew by 14%. "Security is the ideal market for us," Chambers said. "It's made up of hundreds of fragmented players [and] we're the largest volume player."

Cisco struggles in service provider market

Cisco continued to struggle in selling to cable companies and carriers. Orders from service providers fell by 17% in the U.S. and 7% globally.

Over the last 18 months, Cisco changed its high-end product portfolio to be in "architectural alignment" with the needs of service providers, said Robbins who joined Chambers in the conference call. As a result, the company expected sales to return to positive growth in a couple of quarters.  

Chambers will remain with Cisco as executive chairman after Robbins becomes chief executive. Chambers plans to work with Robbins only as an adviser. "Chuck is the CEO -- period," Chambers said. "He will make the decisions."

Robbins, a 17-year Cisco veteran, has said he plans to stick with the company's current strategy. However, he would "accelerate" efforts in certain markets, such as security. He also planned to impose greater "operational rigor."

Next Steps

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SDN to boost Cisco network security

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