Focus on software will benefit Cisco in the long run: TBR analyst

Michael Soper
, analyst, TBR, says Cisco’s 3Q16 results demonstrate a growing focus on software will benefit the company over the long-term.

Cisco is increasing its mix of subscription revenue, but hardware remains the sales volume driver

Cisco’s revenue grew 1% year-to-year, excluding its set-top-box (STB) business, which the company divested in 4Q15. The STB divestment is paying dividends on profitability as its absence drove a 200 basis point increase in gross margin year-to-year. With the exception of steady growth in the NGN Routing, Security and Service segments, Cisco’s segments have swung between growth and decline in 2016 as the company shifts its business model to develop more recurring revenue streams.

TBR believes Cisco is prudently shifting its portfolio – leveraging acquisitions and organic investment – to include more software delivered via a subscription model prior to a significant deterioration in demand for its routing and switching hardware. Cisco will be able to partially compensate for declines in its hardware revenue over the long-term due to its growing focus on security, collaboration and video software and subscription services.

Cisco partnered with Salesforce to enhance cloud-based productivity and customer support

In September Cisco announced a three-pronged technology partnership with Salesforce whereby Cisco will make elements of its Collaboration, IoT and customer support portfolio available on Salesforce’s IoT, Sales and Services Clouds. The outcome will enable Cisco to supply its unified communications, IoT and customer support suite across a significantly broader cloud customer base.

TBR believes the alliance is a substantial boost to Cisco’s strategy to build its stable of recurring Collaboration and IoT software revenue. Virtualized versions of WebEx and Spark will be integrated into Salesforce’s Service and Sales Clouds, creating a one-stop-shop for Salesforce customers to communicate in real-time via video or chat in the Salesforce cloud. For IoT, the companies will combine Cisco’s Jasper platform with Salesforce’ IoT cloud, providing a more robust IoT solution extending Jasper’s end-to-end device lifecycle management to Salesforce’s IoT Cloud users.

Finally, the alliance will address customer service by combining two best-in-class customer support programs whereby Cisco’s Unified Contact Center Enterprise infrastructure is combined with Salesforce’s Service Cloud, a customer support application. The end-result will be a more robust call center and support service.

The Cisco-Ericsson partnership grows to address the enterprise opportunity

In November Cisco and Ericsson announced the next phase of their strategic partnership, which includes plans to offer combined solutions to select enterprise and public sector customers, following the first round of engagements which targeted service providers. Initially the two entities will aim to sell combined solutions to the transportation, Smart City and utilities verticals as well as public sector customers.

In these engagements the basis of the partnership will remain the same, with Cisco providing the bulk of infrastructure and Ericsson addressing the front-end services opportunity, primarily C&SI. As the partnership evolves to include new verticals, additional elements of Cisco’s portfolio will be sold jointly, such as its Security, Wi-Fi and data center switching products.


[email protected]