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