Cisco Not Worried about Whitebox Networking

As Cisco's reports its third quarter earnings, continued declines in switching and routing are a concern.

By Sean Michael Kerner | Posted May 19, 2016
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Cisco reported its third quarter fiscal 2016 revenues on May 18, showing strong results for security and collaboration and some weakness in switching and routing.

For the quarter, Cisco reported revenue of $12 billion for a three percent year-over-year gain. Net income was reported at $2.3 billion or $0.46 per share, which is actually a 4 percent decline from the third quarter of 2015. Looking forward, Cisco provided guidance for fourth quarter revenue growth to be in the range of 0 percent to 3 percent year-over-year.

Cisco CEO Chuck Robbins was particularly optimistic about his companies security products, where revenues grew by 17 percent in the third quarter.

"As one of the largest IT security vendors, we believe our portfolio is the most comprehensive and effective and enabling our customers to protect their businesses," Robbins said. "Security is and will remain one of our absolute highest priorities."

Robbins also highlighted growth in the Application Centric Infrastructure (ACI) Software Defined Networking (SDN) effort, where revenue grew by approximately 100 percent in the quarter.

Cisco was also very busy during the quarter on the acquisitions front, closing five deals, including Jasper Technologies, Acano, Synata, Leaba and CliQr.

While there is much to be positive about, Cisco's switching business declined by 3 percent in the quarter. Cisco CFO Kelly Kramer commented that the decline in switching was mostly driven by macro related weakness in Cisco's campus business. Kramer also noted that Cisco's routing business declined by 5 percent, driven by softness in the high-end market.

Robbins commented that growth in Cisco's campus switching business is largely driven by refresh needs. He added that in uncertain times, enterprises that have functional infrastructure are not going to make the move to upgrade.

"So we see a pause in that refresh cycle, which we talked about last quarter, and nothing really changed there," Robbins said. "What we did see is we saw our data center switching revenue growth increase."

Looking at the routing business, Robbins said that there is a macro issue that Cisco is dealing with.

"We also saw again, as you heard from some of our peers, we saw some increased caution in the service provider space," Robbins said. "We saw slow movement in the core of those networks."

One thing that Robbins said ins't impacting the switching and routing decline is a move to white box networking gear. Robbins comments that it's not exactly accurate to say that all customers want to buy white box switching and all customers are moving exclusively to the cloud.

"What we've been doing is focusing on attacking the business driver and not so much the technology trend that everybody writes about," Robbins said.

Robbins added that in the case of the web-scale players, what they are looking at is significant automation and the ability to run massive datacenters at very large scale.

"They are not singularly focused on white box, they are looking at how do they solve that automation problem," Robbins said. "We're just spending more time with them to really understand what they need and how we can fit their requirements and you're going to see us continue to evolve our portfolio in whatever way we need to to make sure that we remain relevant there."

Sean Michael Kerner is a senior editor at Enterprise Networking Planet and Follow him on Twitter @TechJournalist.

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