Cisco Swings Back to Growth

Cisco has added to the weight of evidence that the recession is over for technology companies, reporting revenues for the second fiscal quarter of US$9.8 billion, up by 8.0% year-on-year (y/y) and 8.8% quarter-on-quarter (q/q). Operating income of US$2.37 billion was up by 33.7% y/y while net income rose by 23.2% y/y to US$1.85 billion. Cash and equivalents stood at US$39.6 billion at the end of the quarter, up from US$35.4 billion at the end of the first fiscal quarter.

On a segmented basis, growth mainly came from rising sales of switches, up by 13.8% y/y and 19.5% q/q. Router sales rose on an annual basis by 2.6%, but slipped back 1.0% q/q. Advanced technology sales, which include the telepresence technologies that Cisco has been working hard to push into the mainstream, showed q/q growth, but were still well down y/y.

Revenue by Region

On a regional basis, the local domestic U.S. and Canadian markets continued to represent over half of all revenues, although the emerging markets showed a strong swing back to growth, up by 29.7% q/q as confidence returned. With longer-term contracts and opportunities for companies to cut costs, services were the stronger performing sector through the recession, but growth is now led by product sales as the network investment cycle gears up again to meet the continued rising demand for data capacity.

Outlook and Implications

Cisco set out to use the recession to reconfigure its operations, make strategic acquisitions and enter market adjacencies. It cut staff from some areas in the last year, although the overall headcount will have picked up through acquisitions (see World: 21 July 2009: Cisco Cuts 700 Staff from Headquarters). Chief executive John Chambers noted, "We are already in the second phase of a capital spending increase,” and envisions an expansion of its 3,000 staff over the next year as the company meets the rising demand. Cisco has posted a strong return to growth, but this has been predicated on sales of its core product, switches, rather than strategic moves to enter new markets (see United States: 18 May 2009: Cisco Targets Rapid Expansion—Report).

However, those moves are still nascent; the acquisition of video technology company Tandberg is still in the pipeline, while that of Starent closed only in late December 2009 (see World: 14 October 2009: Cisco to Acquire Wireless Multimedia Packet Core Tech Vendor Starent Networks; 21 December 2009: Cisco Closes Starent Acquisition; and 2 October 2009: Cisco Makes US$3-bil. Offer for Video Company Tandberg). These moves were also taken on the basis that the growth in video traffic will spur sales of Cisco's core networking equipment.

The year 2010 is also going to be the one in which equipment vendors and carriers attempt once again to move video-conferencing into the home, this time by integrating it with TV equipment (see World: 7 January 2010: Cisco Unveils Home Telepresence as Industry Gears Up for Videoconferencing Push). This push will also entail using the capabilities of video-conferencing equipment to enable new services, such as telemedicine (see World: 29 January 2010: Telefónica, Cisco Launch Telemedicine Pilot).

Other strategic moves made by Cisco through the recession included bolstering its consulting capabilities through a partnership with Accenture, moving into the data centre/server space, and building its portfolio of cloud computing and collaboration products and services (see World: 18 March 2009: Cisco Pushes into Data Centres with Server Initiative and 4 November 2009: Cisco, EMC, VMware to Collaborate in Cloud Computing Infrastructure Development).