Cisco may be accelerating its focus on software, including SD-WAN, but that still is not enough to ease the ongoing downward spending patterns by its service provider customers on its hardware-based switching and routing products.
Cisco CEO Chuck Robbins told investors during the first-quarter 2018 earnings call that the company did not see much of a change in the service provider spending landscape.
“We saw service provider pretty much the same as it has been for some period,” Robbins said during the earnings call.
During the first quarter of 2018, Cisco reported that service provider orders fell 6%. Likewise, the vendor saw weakness in business revenues, which also fell 5%. Part of this decline is in part related to service providers’ requirements to have more disaggregated solutions that are based on software that will run on commercial off-the-shelf servers.
Like other vendors, Cisco is continuing to ramp up its SD-WAN portfolio through acquisitions and its own internal development. Following its acquisition of Viptela, Cisco has in some ways kicked off a long-awaited consolidation of the SD-WAN vendor market. Cisco’s key competitor, VMware, recently signed a deal to acquire VeloCloud. Robbins said that its customers are still trying to understand how they can use and migrate to SD-WAN.
“At our sales meeting, we provided tremendous clarity to our sales organization and our partner community at the Partner Summit about what our strategy is,” Robbins said. “We've now taken customers through the road maps of what they can expect and how to position the different alternatives that we have and how those portfolios are going to come together over the next 12 to 18 months.”
Robbins added that he expects that Cisco will “start to see customers move somewhat this quarter and then in the second half of the year, I think our customers will continue to begin to deploy some of these solutions.”
Increasing cloud focus
Besides SD-WAN, Cisco is hoping to get a bigger piece of the cloud market by partnering with Google as well as through its pending acquisition of BroadSoft.
In October, Cisco and Google Cloud established a partnership to deliver a hybrid cloud solution that the duo said helps customers maximize their investments across cloud and on-premises environments. Under the terms of the agreement, the two companies will provide an open hybrid cloud offering that enables applications and services to be deployed, managed and secured across on-premises environments and Google Cloud Platform.
“Over the last few months our engineering teams have been working closely together to jointly develop a new hybrid cloud solution that is designed to enable applications and services to be deployed, managed and secured across on-premise environments, as well as Google Cloud Platform, bringing the best of cloud to the enterprise,” Robbins said.
Cisco’s partnership with Google is part of a broader effort it is taking to work with a number of web-scale providers. The company is also investing to develop and acquire new technologies to extend its Multicloud Portfolio, which include ACI anywhere as well as acquisitions such as CliQr, OpenDNS, Cloudlock, AppDynamics and Viptela.
Cisco also wants to cash in on the burgeoning UCaaS and hosted PBX markets by acquiring BroadSoft for $1.9 billion. By combining BroadSoft’s open interface and standards-based cloud voice and contact center solutions delivered via service provider partners with Cisco's meetings, hardware and services portfolio, the vendor said that the combined company will “offer best-of-breed solutions for businesses of all sizes and deliver a full suite of collaboration capabilities to power the future of work.”
Robbins said that Cisco expects the BroadSoft acquisition to “accelerate the pace of innovation in our Collaboration business and we see many opportunities to extend the reach of the BroadSoft portfolio.”
However, it will take a few quarters to see what impact the BroadSoft acquisition will have on Cisco’s overall revenues.
Here’s a breakdown of Cisco’s key metrics. Cisco is now reporting sales under five categories: infrastructure platforms, applications, security, services and "other."
Infrastructure Platforms: Revenue dipped 4% to $6.9 billion.
Applications: This segment’s revenue rose 6% to $1.2 billion.
Security: Finally, security revenue was up 8% to $585 million.
Financials: Total revenue was $12.1 billion, down 2%, with product revenue down 3% and service revenue up 1%. Cisco said 32% of total revenue was from recurring offers, up over 3 percentage points from the first quarter of fiscal 2017.
Cisco said the higher orders from demand from the commercial segment and public sector are making it confident it can return to revenue growth in the second quarter. Commercial sector revenue grew 12%, while public sector revenue was up 3%. The company forecast revenue up 1% to 3% year on year and an adjusted gross margin of 62.5% to 63.5% versus 63.7% in the previous quarter.