Cisco grows its non-core revenue
For a mix of reasons there was better news in its non-core activities. Starting with Service Provider and Collaboration.
While the SP Video results look great, they were largely a consequence of the NDS acquisition. This is no slight on Cisco, because the idea that it can use its cash pile to buy growth is a big plus point, but it does suggest that it should make more acquisitions. Unfortunately, poorly timed acquisitions in the collaboration sector may well have dimmed the market’s confidence in its strategy. Speaking of collaboration, it saw conferencing rise 11% but there was more ‘softness’ within telepresence as it continued to decline.
It is, therefore, somewhat puzzling to see Polycom Inc (NASDAQ:PLCM) rising in sympathy. I think this end market may well face some structural challenges in the next few years. IT spending trends are favoring mobility, open source platforms, and cloud-based solutions rather than hardware that ties purchasers to do things like use a fixed room within a location in order to engage in ‘telepresence’.
Turning to Wireless, Security, and Data Center, it is here that we can see the strength in these results.
Data Center has been a stand out performer for Cisco for some time, and its unified data center strategy is enabling it to offer integrated solutions to its customer base. Moreover, Cisco is executing very well in wireless. Telco budgets are shifting from wireline to wireless and it is essential that Cisco takes advantage of this. In particular, its service provider wi-fi growth was quoted as being ‘extemely strong’ while its wireless local area network group was up 17%.
I read this as a positive for a stock like Ixia (NASDAQ:XXIA). Not only is Cisco a major customer, but the company’s test, assess, and monitor solutions are well placed to take advantage of enterprise spending on wi-fi and LANs. If Cisco is rolling out more networks, then Ixia should be well placed to benefit from spending on making sure those networks function effectively.
The bottom line
Frankly, in the current environment, the market will take a lot of heart from these results and the relief rally is evident. Cisco didn’t beat by much and its EPS guidance of was in line with analyst estimates, but it has been such a tough quarter for tech and Cisco’s commentary (particularly on U.S. enterprise spending) was positive.
In reality, it was a mixed performance with its core businesses demonstrating sluggish growth, but the strength in its non-core activities is pointing the way to the future. In short, Cisco needs to use its cash pile to make acquisitions. The good news is that it can, and consequently, it still presents a decent value proposition.
The article Cisco and How Its Results Read Across the Tech Sector originally appeared on Fool.com and is written by Lee Samaha.
Lee is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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