Data-center and wireless sales led growth at Cisco Systems in its fiscal third quarter, as it saw customers spending more in the U.S. and developing countries but reported continuing weakness in Southern Europe.
Cisco is aiming to become the leading overall IT player, breaking out of its role as primarily a network vendor. Sales of its UCS (Unified Computing System) servers and key data-center switches, which grew 77 percent, are being driven by Cisco's overall architecture pitch, according to Chairman and CEO John Chambers. UCS and the Nexus data-center switch line now represent an annual US$5.5 billion business, he said.
Overall, Cisco's revenue grew just 5 percent from last year's third quarter, to $12.2 billion. Switching revenue as a whole fell 2 percent, and the company also brought in less money for its security products and Telepresence high-end videoconferencing platforms.
Profit in the quarter, which ended April 27, grew at a faster pace. Net income was $2.5 billion, or $0.46 per share, up from $2.2 billion, or $0.40 per share, a year earlier.
For the current quarter, Cisco expects revenue to grow between 4 percent and 7 percent.
While declaring itself a more strategic vendor than mere networking rivals, Cisco also restated its case on SDN (software-defined networking), which could threaten the company's switch and router sales by separating network intelligence from underlying hardware. Cisco is promoting a variant of SDN centered on its Cisco ONE (Open Networking Environment), which it says is broader and more compatible with existing equipment. The company has more than 50 beta-test customers for Cisco ONE, Chambers said.
"I don't think it's going to be a software game. It's going to be an architecture game," Chambers said on a conference call with financial analysts following the report. Specialized silicon and hardware will play a role along with software, he said. "We have a number of challenges coming at us. In the end, it will be, in our opinion, an architectural play," Chambers said.
Wireless was another strong area for Cisco in the quarter. Enterprise budgets are shifting from wired to wireless, Chambers said. The company's overall wireless revenue grew 27 percent and sales of service-provider Wi-Fi more than doubled. Cisco is a major supplier of Wi-Fi networks that mobile operators are deploying to supplement their cellular infrastructure, and it is also incorporating cellular radios in that gear where needed.
Cisco saw strong sales growth with all types of customers in North America. Results improved in Central Europe and the U.K. but the company expects continued weakness in the coming quarters in Southern Europe due to that area's weak economy. Sales in the Asia-Pacific region were essentially flat, though revenue grew 8 percent in China, Chambers said.