After blowout Q3, company’s confidence unwavering in the face of the next disruption
Never one to back down from a challenge, Cisco CEO John Chambers expressed unbridled confidence in the company’s position as it faces down its next test: the advent of SDNs. Backed by a $180 billion installed base, dominant market shares in routing and switching, a bang-up third quarter that proved it is outmaneuvering rivals, and a track record of continued success over two decades of industry upheavals, Chambers told the SDN industry to bring it on.
“We feel very confident in our leadership position in this market,” he said to Wall Street analysts on a conference call this week to discuss how Cisco blew away expectations for its fiscal Q3. A transcript of the call can be found here on Seeking Alpha.com.
The formula is simple, he told them. In times of industry change – much like that presented by software-defined networking, which advocates separation of network control and services from network forwarding hardware – Cisco gets very close to its customers, the ones responsible for that $180 billion installed base. It emphasizes its experience with the legacy infrastructure – 70% to 80% it manufactured and sold to them – and articulates a holistic approach to IT transformation incorporating investment protection and incremental extension through software programmability and lots of hand-holding professional services, the same services that grew 7% over last year.
“Our leadership in the data center, wired and wireless networking and our architectural approach is enabling us to be the trusted partner for many customers as they optimize our business for a world of many clouds,” Chambers said during the conference call. “Our services business to continues to be a crucial component of our strategy to become the number one IT company. Together with our partners we are winning large multilayer service deals as our customers to ask us to partner with them to meet their business goals. We see near-term opportunities that leverage our solid $180 billion customer install base and longer-term opportunities around new consumption models and markets.”
And this is at a time where rivals such as Juniper, Aruba, Ruckus and others are offering much more sober outlooks. Cisco’s wireless business, for example,
was up 27% this quarter and its service provider Wi-Fi revenue doubled — Aruba warned that its Q3 will be light and Ruckus missed its Q1 targets.
In the data center, Cisco business grew 77% in Q3. UCS and Nexus together are on a $5.5 billion run rate with UCS benefitting specifically from integrated solutions sales, like the FlexPod reference architecture arrangement with NetApp and the Vblock pre-integrated and packaged infrastructure effort through the VCE joint venture with EMC.
Orders were even up 5% in the U.S. public sector market, a vertical that has been a laggard for Cisco and its peers for the past two-and-a-half years.
With execution like that, no wonder Chambers doesn’t flinch with the arrival of SDN and the profit-killing open source software and commodity hardware riding in on its coattails. He likened SDN to the Layer 3 switching “hype” of 20 years ago, a trend that many said threatened to kill Cisco’s router business and Cisco itself.
“Over the last 21 years, I’ve seen these challenges every few years,” Chambers said. “However, after the hype settled, it was clear that Cisco was the leader and we did it by listening to our customers and delivering products that help them transform their businesses.”
Cisco is intent on playing that same hand at the table with SDN. At the same time, it may be transforming itself.
Chambers told Cisco people listening in on the call not to get comfortable or complacent with Q3’s results.
“We’ve got to execute better, we’ve got to get better coordination across to our functional groups, and if we’re going to break away at the level we want, we got to get it up to another level as we go into Q4 and Q1,” he said.
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