Had I not been mired in preparing for our Mobilize 08 conference, which kicks off tomorrow, I would surely have attended Cisco’s (s CSCO) analyst day, if only to find out how the company with some $40 billion in annual sales plans to keep growing in the face of a tighter global economy. What would have become immediately clear to me is that the company is betting on three buzzwords — video, collaboration and virtualization — to spur annual growth of between 12 and 17 percent over the next few years.
We have written extensively about Cisco’s various moves into collaboration, in particular its pesky fight with Google and Microsoft, as well as its commitment to data centers. While it’s still too early to tell how it will all shake out, our industry sources say that the Cisco sales machines has started to march in this direction.
Not that the company has a choice. Cisco’s core markets of switching and routing (54 percent) are maturing and may grow just 8-9 percent over time, so the company needs to find new growth opportunities — fast. Success, however, is far from guaranteed, especially in the light of competition from certain players that have traditionally been seen as friends.
Numerous analysts that were at Cisco’s analyst day emailed me their research notes. Here are some highlights from RBC Capital Markets, UBS and Lazard Capital Markets:
- Video, collaboration and virtualization were key areas of focus and may collectively represent $62 billion in additional addressable markets.
- Cisco’s core markets of switching and routing (54 percent of their revenue) are hitting middle age and may grow just 8-9 percent over time.
- Cisco expects 8 percent year-over-year growth.
- U.S. financial sector only accounts for 3-4 percent of Cisco’s total sales, so its woes won’t have much of an impact, the company says.
- UBS analysts agree with my prognosis that, along with slugging it out with Microsoft, Cisco is going to butt heads with server makers like HP and IBM.
- Lazard Capital Markets said what we reported back in March, that sooner or later, Cisco is going to make blade servers. As analyst Ryan Hutchinson wrote:
“Are blade servers the next move? Our industry contacts suggest Cisco will enter the blade server market over the next several months. While we have yet to collect all the details, we believe this is an aggressive move toward increasing its control over the next-generation data center.”
What do analysts think about Cisco?
- Mark Sue, RBC Capital Markets: “[D]espite the muted environment, Cisco may be executing better than its peers…we view Cisco as a strong relative defensive name.”
- Ryan Hutchinson, Lazard Capital Markets: “Chambers’ tone continues to be bullish despite the continued macro situation, expressing confidence in Cisco’s ability to grow and take share during market transitions.”
- UBS analysts: “We believe given the slowdown in organic growth & an increasing chance of acquisitions, Cisco’s multiple will likely remain in the mid to low end of its 15-20x historical PE range.”
Photo courtesy of Cisco Systems.
13 thoughts on “Cisco Betting Big on Buzzwords for Growth”
I am a great fan of collaboration and the virtualization of collaboration (in fan my entire blog is dedicated to it) however the deeper I get into working with virtual teams, virtual communities and virtual networks the more I realise that it has almost nothing to do with technology and almost all to do with people issues.
I wish Cisco luck!
Cisco is an incredible company. Wondering in which silo mobile falls into (my guess collaboration).
The WebEx platform will end up competing with Salesforce.com thus mobile would be a natural extension since I also believe the LinkSys One offering will become a hybrid model (hosted & premise) as well. The piece that’s missing is a CRM application that that could boil down to SugarCRM or Zoho.
“Complete” Unified Communications is the holy grail.
As a lay person I can easily understand video traffic is growing. I watched the SNL clip on Sarah Palin by Tina Fey at least 3 times on the internet.
Collaboration is also something I can understand. When I work from home I am usually using the phone and computer. Phone for voice, and computer for presentations.
Virtualization seems very important in the data center and on the server side. That covers the 3 buzz words video, collaboration and virtualization.
If I let my imagination run wild, I can think of a CISCO IP phone which streams video of the person on the other end, email, as well as presentations. That would go a long way in the human collaboration. The blade servers from CISCO however did not fit into this picture. Would be very interested to understand why they would build blade servers.
– Ranjit Nayak