Cisco Data Center Products Lead Strong Quarterly, Yearly Reports

By Chris Preimesberger  |  Posted 2012-08-15

Cisco Systems revealed Aug. 15 in its quarterly and fiscal year financial report that its cloud-system data center business is taking off, its legacy router and switching divisions are basically flat, and its highly touted TelePresence video conference business has fallen off.

The world's largest IT networking company reported earnings and revenue that generally were up, but not substantially so. The numbers beat analysts' expectations during what CEO John Chambers called an "unusually strong quarter."

Net income in the Q4 period rose 15 percent to $2.5 billion, or 47 cents per share, from $2.2 billion, or 40 cents a share. Revenue rose 4 percent to $11.7 billion from $11.2 billion a year ago.

The company posted fiscal fourth-quarter earnings of 47 cents per share, up from 40 cents a share in the year-earlier period. Wall Street analysts had expected the company to report earnings of 45 cents a share on $11.6 billion in revenue, according to a consensus estimate from Thomson Reuters.

Data center equipment revenue, mostly from the company's cloud-oriented Unified Computing System servers, networking and software packages, was up 87 percent year-over-year in their third year of availability. Specifically, UCS equipment sales were up 58 percent over last fiscal year in the face of stiff competition from companies such as Oracle, Hewlett-Packard, Dell and numerous smaller players.

VBlocks, FlexPods, VXI All Selling Well, CEO Says

"Our VBlock partnership with EMC, the FlexPod initiative with NetApp, VXI with Citrix and Private Cloud with Microsoft are all growing better than goals, and for that performance we are very, very excited," Chambers said. "This also comes in the face of one of the two or three most difficult macroeconomic environments in my lifetime."

VBlocks are preconfigured, converged-function cloud computing systems that can run hundreds to more than 6,000 virtual machines, depending on customer needs. In three-and-a-half years, VBlocks have become an $900 million business for Cisco (which supplies servers and networking), EMC (storage and data security), VMware (virtualization and management software) and Intel (processors). 

Routing and switching, upon which Cisco built its business in the 1990s, were up nominally at 3 percent, and the video conference division--launched in 2006--suffered a 30 percent downturn, year-over-year. "Collaboration [including TelePresence, a high-definition, life-size teleconference service, along with the Webex and Jabber services] was down, but we think we're still in a good position moving into the post-PC world," Chambers said.

"[Overall] it was an unusually strong quarter, especially in Asia-Pacific," Chambers concluded on the conference call with analysts and journalists. "The U.S. saw some positive trends. Europe was a bit challenged. Bottom line, we did what we said we would do, and we have great confidence going forward."

Company Added 1,400 Employees

Even though Cisco has been reported to be cutting back on its headcount, Chambers said the company actually added 1,400 employees during the period; the company now has 66,639 full-time employees worldwide.

Cisco also raised its dividend to 14 cents a share from 8 cents a share--an increase of 75 percent.

During the quarter, the company repurchased 108 million shares of common stock under its stock repurchase program for a total purchase price of $1.8 billion.

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