Cisco Sees Revenues Jump 7 Percent as Switch Sales Rise

Revenues for most of the networking vendor's businesses, including the data center, wireless, services and collaboration, grew in the last quarter.

Cisco John Chambers

Cisco Systems is continuing to see gains from its multi-year transformation strategy to remake itself as an enterprise IT solutions and services vendor. The world's top networking technology vendor saw revenues in its fiscal second quarter 2015 jump 7 percent over the same period a year earlier, hitting $11.9 billion. The increase represents strong gains in its networking and router businesses. Net income came in at $2.7 billion.

While the vendor saw continued weaknesses in some segments, such as global service provision, where orders fell 1 percent, most other areas showed gains. Cisco continues to see growth in most other areas, including the data center, services, wireless, collaboration and the cloud.

The company is seeing the early fruits of an effort that began more than three years ago to expand beyond its core networking businesses and embrace cloud, network virtualization and the Internet of things (IoT), according to CEO John Chambers.

"Cisco has never been better positioned," Chambers said during a conference call Feb. 11 with analysts and journalists, noting growth in most product segments and geographical regions. "The momentum in the business feels extremely good."

The company has seen continued growth in its switching business plus gains in its router unit despite the increasing trend toward software-defined networking (SDN) and network-functions virtualization (NFV). These two infrastructure models threaten Cisco's core businesses by enabling organizations to use less costly and less complex systems. Some larger Web companies, such as Facebook and Google, are designing their own switches as they look for more cost-efficient ways to build their own networks.

Cisco is responding to the challenge with new families of switches—like the Nexus 9000 series—that form the foundation of its Application Centric Infrastructure (ACI). The infrastructure is designed to bring levels of programmability and agility to networks that SDN does, but runs atop more robust switches.

The Cisco switches bring enterprise-level security and manageability capabilities that commodity systems can't match, Chambers said. Combined, revenue for the Nexus 9000 and 3000 series switches grew 350 percent over the same period a year earlier, and the Nexus 9000 family passed the 1 million mark for installed ports, according to Chambers. Cisco also has shipped more than 300 of its Application Policy Infrastructure Controllers (APICs) since its release in July 2014.

The Nexus 9000 has more than 1,700 customers, up from 970 in the previous quarter. Overall, switching revenues jumped 11 percent, to $3.6 billion, while next-generation routing revenues grew 2 percent.

"ACI and APIC will be the cornerstone of networking for the next several years," Chambers said, adding that he expects the company's network virtualization technology will have the same positive impact in the market that Cisco's Unified Computing Systems (UCS) converged infrastructure solution had in the data center when it launched more than five years ago.

The UCS was Cisco's entrance into the wide data center market, combining its compute and networking technology with storage from EMC and virtualization from VMware into a single solution. It has vaulted Cisco on to the list of the world’s five largest server vendors. In the last quarter, the UCS business hit a $3 billion run rate and more than 41,000 customers.

Overall, revenues for the vendor's data center business in the quarter grew 40 percent year-over-year.

Most other areas also saw gains, including Meraki's cloud networking business, which was up 100 percent and is on the way to an annual run rate of $400 million, wireless (up 18 percent), collaboration (up 10 percent), and services (up 4.6 percent).