Cisco’s Strongest Quarter Ever Built on New Gear

At the beginning of the recession, Cisco CEO John Chambers detailed his playbook for his company’s growth through the downturn. It’s a playbook that has now resulted in what Chambers is describing as the one of the strongest quarters ever for the networking giant, despite new competition in the data center.

At the heart of Cisco’s strength is growth in new products in its core switching and routing technologies, which it sees continuing to play a key part in not just enterprise networking, but throughout the enterprise data center.

Cisco’s third-quarter fiscal 2010 results topped Wall Street estimates — already high following previous quarters of beating expectations. Net sales came in at $10.4 billion, representing a 27 percent year-over-year increase while income grew by nearly 63 percent to $2.2 billion, or $0.37 per share. Minus one-time items, earnings totaled $0.42 per share, beating analysts’ per-share estimates of $0.39 on sales of $10.4 billion, according to Thomson Reuters.

“From almost every measurement perspective, whether revenues, earnings per share, new product introductions, successful acquisitions, economic challenges, internal start-ups and so many more, this quarter was probably the strongest quarter we’ve had in our history,” Chambers said during his company’s analyst call.

Moving forward, Chambers is remaining optimistic, providing fourth-quarter fiscal 2010 revenue guidance for growth in the 25 to 28 percent range on a year-over-year basis.

IT buyers snapping up new Cisco products

Growth during Cisco’s third quarter came across multiple segments, though Chambers specifically noted how new products were helping to drive growth, especially in the switching and routing space.

Cisco CFO Frank Calderoni reported that switching revenues hit $3.7 billion during the quarter, a 40 percent gain from a year earlier.

“Our switching revenue for the quarter represents a record in dollar terms and the highest year-over-year switching revenue growth we’ve experienced in nearly a decade,” Calderoni said.

Helping to lead the way for Cisco’s switching gains was its next-generation Nexus switch family, which started with the Nexus 7000 first announced at the beginning of 2008.

According to Chambers, IT decision-makers are continuing to flock to the product line, with Nexus 7000 revenues growing by 281 percent on a year-over-year basis. That one switch now has an annualized run rate of over $1 billion in sales, he added. Sales of the smaller Nexus 5000 switch grew by 425 percent from a year earlier, with a run rate now of $250 million a year.

The Nexus 5000 switch is also a key enabler for Cisco’s Unified Computing System (UCS) server solution, which also grew during the quarter. Chamber noted that UCS customers doubled during the quarter from 370 to 900 customers, though Cisco is just getting started in the area: He reported that the UCS product line now has an has annual run rate of $200 million.

UCS first debuted in March 2009 and was recently updated to the latest generation of Intel Westmere chips. With UCS, Cisco is competing against former partners, including HP, but Chambers said entering into a new rivalry with formerly allies hasn’t hurt Cisco yet.

“Nearly all of the UCS customers were competitive wins versus large incumbents,” Chambers said. “Customer acceptance is very strong, with the majority of our initial buyers are coming back with repeat purchases. We’ve seen strong traction in all verticals within the enterprise segment.”

New routing equipment is also helping Cisco’s growth. In October 2009, Cisco updated its Integrated Services Router (ISR) to its second generation with the ISR G2 product portfolio. Chambers reported that the ISR G2 achieved a run rate in its second revenue generation quarter of annualized $500 million, a gain of more than four times compared to the previous quarter.

“The key takeaway from these outstanding year-over-year and quarter-over-quarter growth numbers for our newly introduced products is how fast they are ramping up and how fast our customer base is expanding using these new products,” Chambers said.


Sean Michael Kerner is a senior editor at, the news service of, the network for technology professionals.

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