Five key partner takeaways from Cisco's Q3 results

We've sifted through networking giant's Q3 results statement and call transcript, so you don't have to

Cisco is back in growth mode, but investors want more

Just like IBM, Cisco has finally returned to growth mode, logging its second straight quarter of year-on-year growth in Q3 ending 28 April 2018.

But although revenue growth of four per cent was in line with expectations, Wall Street was apparently a little underwhelmed by the networking giant's guidance for Q4, when it expects to grow by between four and six per cent.

Cisco's shares dipped four per cent in the aftermath of its earnings announcement.

A gentle slide in Cisco's share price this week has halted a bull run that saw it hit it hit a 17-year high last week. Investors may be buying into CEO Chuck Robbins' vision, but are willing to punish the firm if it doesn't deliver on their engorged expectations.

Q3 was ‘solid' but not spectacular

Anyone on the Q3 conference call was left in no doubt that Cisco had a ‘solid' quarter.

In fact, Robbins and his CFO Kelly Kramer deployed the word ‘solid' no less than seven times during their overview of the results which showed revenue rising from $11.9bn to $12.5bn year on year and net income swelling seven per cent to $2.7bn.

Breaking that down further, infrastructure platforms grew two per cent and security grew 11 per cent.

By geography, EMEA sales rose six per cent, compared with the four and three per cent growth recorded in the Americas and APJC, respectively.

Recent acquisitions added about 1.2 per cent to the revenue total, but in actual fact despite the recent growth Q3 sales remain below 2016 levels (see graph below).

"To summarise, Q3 was a good quarter with solid top-line growth, strong profitability and order growth. We continue to make solid progress on our strategic priorities, making key investments to drive our long-term growth," burbled Kramer.

Switching has stabilised

Having appeared to be in freefall a year or so ago, Cisco's core switching business is going great guns again, with sales returning to growth in Q3. Cisco said it saw switching growth in both the datacentre and campus, thanks in the latter instance to the introduction of its new Catalyst 9000 switch.

Indeed, Robbins waxed lyrical about Cisco's return to form in switching - and its broader enterprise portfolio - on the conference call when asked what excited him most about potential opportunities for the vendor.

"When I became CEO three years ago and even when we were on the road last year, I said the number one priority for us right now - and obviously we're going to continue the business model evolution - but the number one priority was to get the enterprise portfolio and particularly the switching business stabilised, which our teams have done a great job," he said on a conference call, a transcript of which can be viewed here.

"And I'm very optimistic about the overall innovation within the intent-based networking portfolio that we're going to bring forward over the next months, quarters and years."

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Five key partner takeaways from Cisco's Q3 results

We've sifted through networking giant's Q3 results statement and call transcript, so you don't have to

Catalyst 9000 switch the ‘fastest ramping Cisco product in history'

The Catalyst 9000 now has 5,800 customers, up from 3,100 last quarter, meaning Cisco is adding 40 customers per day that acquired the Catalyst 9000 for the first time.

This makes it the "fastest ramping new product introduction" in Cisco's history, according to Robbins.

Robbins cited the 9000 as a prime example of how Cisco has begun to scale its enterprise networking business into a subscription model.

On that note, Cisco said it generated 32 per cent of its total revenue from recurring offers in Q3, up from 30 per cent a year earlier. Revenue from subscriptions was 55 per cent of our software revenue.

Cisco could make more cybersecurity acquisitions

Cisco has been an acquisition machine of late, in Q3 closing its acquisitions of cloud contact centre player Broadsoft and hyperconverged infrastructure outfit Skyport Systems. Just this month it put its hand in its pocket for Accompany, which provides an AI-drive relationship intelligence platform.

Many of Cisco's recent purchases - among them Portcullis and Sourcefire - have focused on cybersecurity, and on the call Robbins hinted that this is an area Cisco will look to bolster further.

"The great thing about this architecture when we build it is that you can continue to add virtually any source of threat intelligence to this, because it's built to digest massive amounts," he said. "I mean, we see 20 billion threats every day. So, you can assume that we can add any sort of capability that we like that includes threat sources and frankly the same thing from a defence perspective. So, within the portfolio, I think, there's always an opportunity for our teams to continue to improve and continue to add features and there's a lot of good competition in the space, it's very fragmented, so we just continue to execute against delivering that architecture."