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The bets Cisco Systems Inc. has made on technologies such as voice over IP, security and wireless seem to be paying off as the company last week reported positive growth for its fourth fiscal quarter.
But despite overcoming Wall Street skepticism and posting gains, doubts about continued growth and questions about future tech strategies are keeping the pressure on the networking giant.
Cisco said 2005 fourth-quarter revenue grew 11 percent over the year-ago quarter and 6.4 percent over its third quarter of 2005, reaching $6.6 billion. But Ciscos share price dropped after the San Jose, Calif., company said it expects its first fiscal quarter of 2006 to be up 10 percent over the same quarter in 2005 but slightly below the fourth quarter of 2005.
“Theyre a victim of the law of large numbers,” said Dave Passmore, an analyst at Burton Group, in Sterling, Va. “As you get larger, its difficult to maintain impressive growth rates. Their primary market is pretty well saturated. They have to keep making bets on new areas.”
“Not only are we achieving the No. 1 position in most of our advanced technologies, but we are gaining market share in every advanced-technology area,” said Cisco CEO John Chambers, in the earnings call last week.
Ciscos six advanced-technology areas grew 30 percent overall in the fourth quarter, compared with the same quarter last year. The star performer in this quarter was IP telephony, which grew 50 percent among Cisco enterprise customers. Security grew 25 percent over the same quarter last year, wireless grew 25 percent, home networking grew by about 35 percent, storage grew in the 40 percent range and optical networking grew about 15 percent.
For the full year, Ciscos revenues reached $24.8 billion, an increase of 12.5 percent over 2004.
Cisco achieved an unusual balance for the industry across its product lines and market areas, Chambers said. “The home run for the quarter was the continued balance weve been able to achieve from geographies, customer markets, architectural evolutions and product families,” he said.
Cisco has identified new technology areas it hopes to exploit to become the next $1 billion business. Although Chambers would not identify those areas, he said Cisco “will announce a new one every three or four months” over the next 12 to 18 months.