Cisco's Robbins 'optimistic' on service provider division's growth

Cisco CEO and Director Charles Robbins sounded an optimistic note on the future of the company's service provider (SP) division, saying that its overall growth in the fiscal fourth quarter signals an alignment of the manufacturer's "architectural vision" with that of its customers.

Robbins said on the switching side, they are "very optimistic and pleased" with growth in the segment, with the Nexus 3000/9000 driving its revenues in that unit.

Switching revenues in the quarter grew to $438 million, with its Nexus 3000, 9000 and ACI products seeing 100 percent revenue growth year-over-year and more than 50 percent over the previous quarter. Cisco added 1,400 new Nexus customers in the quarter, bringing its total to 4,100. More than 30 percent of its Nexus 9000 customers are brand-new, with 26 out of its 28 enterprise customers using the switch product.

Overall services revenues grew 4 percent year-over-year to $2.9 billion.

"We're very happy with the transition going on in the data center switching space. As we look at customers that are migrating to 10-gig, 40-gig, 100 gig, which is really represented by the data that I gave you earlier, and it's just being offset by the transition from the Nexus 7000 to these new platforms," Robbins said on the company's earnings call, according to a Seeking Alpha transcript.

High-end routing drove routing revenue up 3 percent in the services division, while its data center business saw 14 percent growth year-over-year, driven by its UCS product.

Not every part of Cisco's service provider unit saw growth: its SP Video segment revenues were flat. In July, Cisco sold the CPE portion of its SP Video unit to Technicolor for $600 million. "We will continue to refocus our investments in service provider video towards cloud and software-based services," EVP and CFO Kelly Kramer told investors.

The company also shed its Invicta data-storage hardware line in July.

Robbins said he's pleased with the service provider side getting back on track with growth. The company made changes in its engineering, services and sales staff "to better position us," he said.

Further, customers are responding to the changes Cisco has made in the SP division, he said. "I also think that we have really gotten to a point of what I'd say [is] architectural vision alignment with most of our customers. We saw balance throughout the quarter in SP."

Still, Cisco has not modeled any significant increase in capex spending during the second half of the year in SP, he said. The company is staying cautiously optimistic about growth in the segment, with Robbins saying he's "not concerned at all about the enterprise business."

For the fiscal fourth quarter of 2015, Cisco pulled in revenues of $12.84 billion, up 4 percent year-over-year. Net income was $3.01 billion, up 6 percent, for a non-GAAP earnings per share of 59 cents. Its operating cash flow was up 15 percent year-over-year to $4.14 billion.

Cisco is forecasting total revenue growth in the fiscal first quarter of 2016 to be 2 to 4 percent year-over-year, with a predicted non-GAAP EPS of 55 to 57 cents.

Shares were up 3.76 percent in midday trading Thursday, to $28.95 on the Nasdaq.

For more:
- see the earnings release
- see this MarketWatch article
- see this Seeking Alpha transcript

Special Report: Wireline telecom earnings in the second quarter of 2015

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