Four things are clear from Cisco's better-than-expected Q1 FY 2013 results:
- Cisco's resolve to become the Number One vendor in IT
- Collaboration and TelePresence remain challenging product areas for the company
- Europe and the public sector continue to be challenging markets
- Cisco's intent on connecting EVERYTHING
Cisco's Q1 came in ahead of Wall Street expectations and as a result, the companys stock rose 5 percent at the end of the day Wednesday. Revenue rose 6 percent, adjusted earnings per share rose 11 percent, order growth was solid in the US, edge routing, wireless and data center were particularly strong, and Q2 guidance was in-line with analyst estimates.
Yet there continue to be trouble spots. Economic conditions in Europe are still an issue, leading to weakness in orders and product revenue growth. Orders for Cisco products in the region fell 10 percent from last year, with enterprise decreasing mid-teens and service provider declining in the high-teens.
The US public sector vertical is also still soft, down 15 percent from a year ago.
Weakness in both of these markets contributed to a 2 percent decline in Ciscos switching and routing revenue.
Collaboration also continues to be a laggard in Ciscos product portfolio. The business was down 8 percent again this quarter from a year ago which was a record quarter - just as it was in Q4, 2012. Cisco just named its third chief for the business in less than a year, and is intent on correcting recent trends.
"We need to do a better job in collaboration, and will continue to invest in innovation and sales execution to capitalize on this very important marketplace," CEO John Chambers said in the Q1 conference call this week. A transcript of that call can be found on the Seeking Alpha.com site.
"Some of the priorities include integrating WebEx, Jabber, unified communications and TelePresence into a single call manager," Chamber said.
"You will see us continue to pull together our TelePresence, unified communication and WebEx offerings into an integrated open architecture that enables communication with any device to any other, with consistent experience and unparalleled ease of use," he said. "We believe this strategy will position us well to address the evolving requirements in this market."
Speaking of TelePresence, that HD conferencing business was down in the mid-teens overall, and more than 30 percent in the US federal government market in Q1.
"We anticipate (collaboration) being a tough battle, especially if we don't see economies pick up from present levels," Chamber said.
It may be key to Cisco's ambitions of becoming the Number One IT company in the industry. Chambers reiterated that goal this week and, despite the product challenges, said that Cisco's prepped to attain it.
"We are evolving the role we play in our customer accounts moving from the top communications company to our goal of becoming the Number One IT company," he said.
Thats assisted by 61 percent growth in Ciscos data center business, where the UCS server platform is spurring follow on sales. In the enterprise, data center grew 54 percent in Q1 for Cisco, fueled by the adoption of Intel Romley- based servers. Chambers says Cisco is No. 4 in the overall server market after three years in the business.
The service provider data centre business doubled in the quarter.
For the first time, we are starting to see our leadership in IT, especially the UCS pull through our communication products, Chamber said. This is especially important in terms how CIO's are beginning to view Cisco, not just as a leader in communications, but view us as an IT player, who also does communications.
But it is these and other opportunities in cloud, mobility, video, software and services, driving Cisco to what Chambers says is the companys biggest market transition yet: The Internet of Everything.
Chambers describes the Internet of everything as a platform to connect the 99% of the world thats not connected now.
Ninety-nine percent of the devices aren't connected, he says. It has huge implications for a big data, huge implications of where you put processing and storage throughout the network, huge implications on security, programmability, flexibility, etc.
We have an unprecedented ability to harness and turn the information that will flow across networks and to new capabilities, which are experiences and unprecedented economic opportunities for the businesses, individuals and countries, he says. The opportunity for Cisco and the intelligent network is clearing compelling.