Cisco Reports Solid Quarter, Cites Collaboration, Cloud Strengths

Cisco Systems saw revenue in its fiscal third quarter jump to $10.4 billion and income climb to $2.2 billion, in what CEO John Chambers calls an outstanding quarter. Chambers cites Cisco's data center partnership with EMC and VMware, and the acquisition of Tandberg, as key strengths of the enterprise networking company.

Cisco Systems CEO John Chambers sounded both excited and cautious as he announced strong quarterly earnings for the company May 12.

Several times during a lengthy conference call with analysts and reporters, Chambers touted fiscal third-quarter results that included revenue of $10.4 billion and net income of $2.2 billion-27 percent and 62.6 percent increases over the same period in 2009, when the global recession was in full swing. He called the results "outstanding" and said they were spread across the company's businesses and most regions.

Oftentimes those praises were followed by notes of caution, with the CEO telling investors not to become overly optimistic and to "wait for additional economic data" before changing their investment plans.

Such is life during the recovery following the harshest economic downturn since the Great Depression.

But Chambers said unless something unforeseen happens to derail things Cisco is in a strong position to continue its solid growth. He said the company is predicting revenue growth of 25 to 28 percent for the current quarter, and hiring will continue for the next few quarters as Cisco adds 2,000 to 3,000 jobs.

While the company's core networking businesses continues to see strong sales, he also pointed to the recently completed $3.4 billion acquisition of video conferencing company Tandberg and Cisco's burgeoning data center partnership with storage giant EMC and virtualization technology maker VMware as keys to the future.

The Tandberg deal-which was marked by initial resistance from Tandberg shareholders and a lengthy review by European regulators-will strengthen Cisco's video conferencing business.

Company officials have said they believe that with Tandberg in the fold, revenue for Cisco's TelePresence business could grow to $1 billion or more, and they have predicted that the worldwide market immersive video collaboration space could grow from $3 billion in 2010 to $10 billion over the next five to seven years.

Cisco also is moving its TelePresence systems into verticals such as health care, education and retail.

Chambers also touted Cisco's growing data center business, citing the partnership with EMC and VMware. Unified Computing System, Cisco's converged data center offering, has close to 900 customers now and the company has won several big deals against large competitors, he said.

He also cited the partnership's development of VCE (Virtual Computing Environment), a joint venture to produce cloud computing systems called vBlocks. The three companies also created a company, called Acadia, to market the vBlocks.

Chambers said virtualization and cloud computing will be important in data centers and the partnership with EMC and VMware-of which EMC owns about 80 percent-will be a key player in the future.

Chambers' comments came the same week that EMC is running its EMC World conference in Boston. During the event, held May 10 to 13, a key theme was EMC's push to help businesses in their migration to private clouds, and EMC CEO Joe Tucci several times mentioned the importance of the partnership with VMware and Cisco.

Analysts were impressed by Cisco's quarter. In a report May 12, Brian White, an analyst with Ticonderoga Securities, said Cisco is making the right moves as the tech industry recovers.

"We continue to believe Cisco is in the midst of a major transformation that is pushing the company into new markets, new product lines and lesser-penetrated geographies, potentially allowing for an expanded addressable market and attractive sales growth," White wrote. "We continue to believe that Cisco offers investors one of the most attractive ways to play this tech recovery and participate in new growth opportunities (e.g., virtualization, cloud computing, consumer, video, collaboration)."