Following a two-year revenue decline, Cisco has forecast an increase in sales in the current quarter, as enterprise...
customers warm up to new products stemming from the company's security and intent-based networking initiatives.
On Wednesday, Cisco revenue was projected to increase by 1% to 3% in the current quarter. The company based the forecast on the progress it has made in transforming itself from a maker of traditional network switches and routers to a software-centric, subscription-based business.
"Cisco is prudent when it comes to guidance and outlooks; the executive team must be profoundly confident in the company's ability to clear the bar," said Brad Casemore, an analyst at IDC.
In the fiscal first quarter ended Oct. 28, revenue from software and subscriptions rose 37% year over year to $5.2 billion. Nevertheless, total revenue from products and services fell 2% to $12.1 billion, marking Cisco's eighth consecutive quarterly decline. A decrease in router sales was a significant contributor to the drop.
Cisco revenue helped by 1,100 new Catalyst 9000 customers
Despite the decline, Cisco continued to show progress in areas expected to drive future growth. Applications and security were up 6% and 8%, respectively, and the company had more than 1,100 customers for its latest line of campus switches, called the Catalyst 9000s.
Brad Casemoreanalyst at IDC
"We're pleased with the early feedback [on the Catalyst switches]," Cisco CEO Chuck Robbins said during a conference call with analysts. "We would hope the platform continues to accelerate."
Sales of the switches -- introduced in June -- are significant because the software included with the hardware is sold through a subscription model. Cisco expects the central management console for the switches, called the Digital Network Architecture (DNA) Center, to become an important contributor to recurring revenue, as more networking products are tied to the software.
DNA Center is also a component of Cisco's recently announced intent-based networking initiative. The goal of IBN is to integrate automation and machine learning into network management so operators can make changes to devices through policy-driven software, rather than reconfiguring each piece of hardware separately.
Customers upbeat on Cisco-Viptela SD-WAN
Cisco reported encouraging talks with customers interested in the SD-WAN technology the company acquired in early August after completing the $610 million purchase of Viptela. "I would expect that we'll start to see customers move somewhat this quarter. And then, in the second half of the [fiscal] year, I think our customers will begin to deploy some of these solutions," Robbins said.
The SD-WAN market has evolved into a race between Cisco and VMware for the top slot, according to London-based IHS Markit. This month, VMware said it would acquire VeloCloud, which IHS identified as a revenue leader along with Viptela.
Other indicators of potential Cisco revenue growth include the company's work in the hyperscale data centers of Google and Alibaba Group Holding Ltd., China's largest online retailer and public cloud provider.
Cisco is helping Alibaba build a new data center that would use Cisco infrastructure technology. The partnership with Google includes building technology for interoperability between the Cisco HyperFlex hyper-converged system and the Google public cloud.
Cisco's work with Google will improve its standing in the market for technology that sits at the edge of an enterprise data center and connects the organization to its public cloud provider, Robbins said.
"They [cloud providers] definitely have come to the conclusion that the edge is going to be mission-critical for our customers going forward," he said. "As they think about that, we're the very natural partner for them."
Cisco's net income for the quarter was down 2% to $3 billion, based on non-GAAP results. Earnings per share were 61 cents, which was flat from a year ago and slightly higher than the 60 cents forecast by analysts polled by Thomson Reuters.