Cisco's Reported Move to Sell OS Software Appears to Be a Pragmatic Response

Cisco's Reported Move to Sell OS Software Appears to Be a Pragmatic Response to Big Threat

As such Cisco Systems (CSCO) tries to be less reliant on its switching and routing franchises and increase its exposure to software / services, these being accounted for 60% of the turnover of business (hardware and software) goods in the last trimester. Their share of total revenue is likely to be more than 50 percent, but it is difficult to get an exact number because Cisco does not specify which of its service revenues relate to the sales of switches and routers.

The use of investment and procurement software and services, R & D, Cisco may continue to increase in the coming years despite the startup and fall of routing. But they can not allow the bottom to withdraw from these companies due to rigid competition pressure, trends and technological developments in IT spending patterns. In this context, the plans informed by the company to review their replacement strategy have a logic for them. But it is also worth asking if Cisco go even further in time.

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Cisco announced Tuesday that it "plans to sell operating system software" to cheaper switch users running on third-party Broadcom Switching (AVGO) chips, allowing them to avoid buying more powerful or expensive switches that Operate Cisco proprietary ASICs. Engineers are said to run on the operating system, which is called Lindt.

The report is a bit tricky at first, since all Cisco switches come with one of the business operation systems. Cisco Nexus switches, which generally fall into data centers operate on the Cisco NX-OS. Its Catalyst switch line, which is primarily used in campus and branch environments, runs on some version of the iOS operating system (not to be confused with the Apple OS OS of the same name), while most Cisco routers.

But while all Cisco Nexus use the same operating system, they do not all have the same software. The Nexus 9000 switches the company, most of which runs on ASIC, support the network platform (SDN) defined by the AIT software, which (with the help of a driver software) enables enterprises to quickly allocate Network resources and set policies for applications running in a data center, and gain better visibility into how they work. The less powerful Nexus 3000 line based on the Trident II and Tomahawk Broadcom switching chips is not compatible with AIT.

It is important to note that Cisco NX-OS has rewritten to support the AIT, and Nexus 9000 switches using ACI have an independent boot mode. So, one possibility is that Cisco plans to start taking load from ACI changes to Broadcom.

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Cisco claims a high Nexus 9000 and ACI usage; It added 1300 Nexus 9000 customers and 450 AIT quarter of January, which helped increase its total base from 10 to 800 and 3 100. And Cloud Scale ASIC uses the latest Nexus 9000 switches have impressive specifications. However, total alternative revenue fell by 5% per year to 3.3 billion. Soft campus switching sales have been a factor, but competing hard data centers Arista Networks (ANET) and many other businesses rely on Broadcom switch chips and to some extent Cavium (CAVM).

Arista, backed by strong demand from cloud giants, saw revenue rise 34% last quarter to $ 328 million. Sales of the "white boxes" switches made by Asian contract manufacturers have also increased as cloud giants and other service providers able to invest in the resources needed to handle bulk purchases, often through the Design changes themselves. This is a problem that is becoming increasingly important because cloud companies represent an increasingly important part of IT spending.

And Arista and others have recently opened a new front in their battle against Cisco by launching switches (thanks to the packet processing chip from Broadcom Jericho) can handle many routing functions and thus simplify the network infrastructure. Arista expects to have 100 customers for its R Series R / Router range this summer.

Corporate white-box adoption is still in its infancy, but the trend could accelerate the adoption of third-party SDN platforms like VMware (VMW) NSX. NSX moves much of the intelligence of a network controller software, making it easy for a company that does not have the technical resources of a Google or Amazon switch products use. VMware announced in January that NSX is now at a rate of $ 1 billion. And on the support side, Google has recently announced that it will help mobile operators adopt SDN and other technologies that have been deployed in their data centers.

The availability of ACI on Nexus switches powered by Broadcom would put Cisco on a more competitive foot against its League rivals, especially among companies and operators who have Nexus equipment much cheaper. This could also improve Cisco's position with the cloud giants, but it is less secure given the investments that these companies have already introduced into their existing platforms.

In the long run, Cisco's interests could go further and allow the ACI to support third-party switches, because of the pressure on prices as white boxes vendors can exercise. Another option for the treatment of a heated competitive environment is to start authorizing its switching operating systems for use in third-party hardware, just like Arista.

For now, Cisco does not seem to plan anything drastically. In a statement on the CRN trading site, the company insists that "tight integration of hardware and software will continue to be network-based solutions we offer to our customers."

Given the billion-dollar gains that Cisco still reaping their commuting empire, you can not blame the company for choosing a measured response to SDN and white-box threats. But the company clearly represses how it is a very dynamic landscape, and the change of planning strategy that should be easily followed by others in the coming years.

Are Investors Too Excited About Cisco Systems' Anemic Growth?

Shares of Cisco (NASDAQ: CSCO) recently reached a 16-year high after it beat second-quarter estimates at both levels. Despite this enthusiasm, the numbers of titles seemed anemic. Revenue fell 3 percent a year to $ 11.58 million, well above expectations of $ 30 million. Non-GAAP net income remained stable for one year at $ 2.9 billion, or $ 0.57 per share, which exceeded estimates still by one cent.

As a shareholder of Cisco, I was pleased to see the increase in fees. But it also made me wonder - Cisco deserved to go up to pre-bot dotcom levels? Or rally Cisco that feeds simply the demand for reliable dividend games with low ratings in a market with low interest rates? Let's take a closer look at the Cisco Revenue report to find out.

First, the good news ...

Cisco's security business unit was the fastest growing in recent quarters. The company's turnover increased 14% annually to $ 528 million, and deferred revenue - a key indicator of future demand - increased by 45%. Cisco attributes growth to strong demand for its advanced threat solutions, next-generation firewall and secure Internet gateway products.



Cisco's revenue collaboration also increased 4% to $ 1.06 billion, and deferred revenue increased 14%. This growth has been attributed to WebEx and Spark, the cloud-based business collaboration platform was launched in late 2015. However, the spark faces a stiff competition in the collaborative space of competing platforms.

Cisco's wireless products rose 3% to $ 632 million, boosted by the continued expansion of wireless infrastructure to satisfy hungry data customers, strong sales of its wave 11ac 2 (a new standard) Wi-Fi connection.

Cisco's total deferred revenue increased 13% year-on-year to $ 17.1 million, thanks to increased demand for software subscriptions and offers. This growth will gradually allow Cisco to swing away from its slower growing computer business. Cisco has also increased its three-cent dividend to $ 0.29 per share, which means a 3.4 percent profitability, marking its sixth consecutive increase in dividends. Finally, Cisco generated $ 12.3 billion of cash flow available in the last 12 months, which gives it a lot of capital to buy other companies in the fastest growing markets such as security, analysis and The Internet of things.

Now the bad news ...

The big problem for Cisco is that its security, collaboration and wireless generate only less than a fifth of its total volume. Nearly half of Cisco's revenue still comes from its switches and routers units, which are experiencing slow growth due to market saturation and commodification.

Cisco's switching products fell 5% per year to $ 3.31 billion during the quarter due to weak demand from campus customers, which was partially offset by increased demand for its ACI products. Routing revenue fell 10% to $ 1.82 billion, a growth in orders failed to offset the pressure on prices.

These declines indicate that rival cloud-based SDNs, such as Arista Networks (NYSE: ANET) - of which Cisco is trying to resolve the differences - are causing a paradigm shift that is detrimental to the market. Cloud-based networking solutions are more scalable and require less equipment in the hotel, such as routers and switches, that could transform Cisco's business upside down. Arista even claimed that the combination of their Jericho switches with their FlexRoute software can completely replace the cheaper SDN solution routers.

Sales of Cisco data centers also fell 7% to $ 790 million, due to the change in the "rack sheet" in which corporate customers prefer the smaller, cheaper and more scalable servers in servers Blade more powerful and more powerful.

Finally, Cisco's advice was mediocre at best. For the current quarter, it expects 2% growth in turnover with non-GAAP earnings of $ 0.57 to $ 0.59, which would be almost unchanged from previous year levels. Analysts expect their turnover to be 2% and profit increases