The Anatomy Of Cisco's New Networking Product

| About: Cisco Systems, (CSCO)

Cisco (CSCO) has launched new products for data storage area network to provide better performance than solutions of rival companies. The new products are to cope with the explosive quantity of data that organizations process and store. In this article, I want to show how the trend in the Big Data market will favor the sales of Cisco's new products. I particularly want to look at how the rising Big Data market will enable Cisco to make better sales with its new solutions. This factor will enable Cisco to improve its price multiples.

Why will Cisco achieve sales growth with the new storage network solutions? The market for Big Data solutions and configurations supporting them is increasing worldwide. According to IDC, an industry analyst, the market is expected to grow from $3.2 billion in 2010 to $16.9 billion in 2015. This represents a compound annual growth rate of 40%. The growing trend will expose Cisco's new solutions to a bigger market and enable it to generate more sales.


Cisco has already experienced sales growth with its data storage solutions in the past. Its Data Center Business, which encompasses storage area network products, shot up 65% in revenues in the company's fiscal 2013 second quarter earnings report. The sector enabled Cisco to make net sales of $12.1 billion, a 5% increase year-over-year. Net income was $2.7 billion.

"Cisco delivered record earnings per share this quarter and record revenue for the 8th quarter in a row in a challenging economic environment. We continue to drive the innovation, quality, and leadership our customers expect, and we remain focused on consistent returns to our shareholders," said John Chambers, Cisco's chairman and chief executive officer.

In the first quarter, the Data Center Business helped Cisco to net sales of $11.9 billion, net income of $2.1 billion, and earnings per share of $0.33.

"We delivered a solid quarter," said Chambers. "We've completed the majority of our restructuring and have organized Cisco to successfully execute against our strategy of proving intelligent networks, architecture, and integrated products that solve customers' business problems."

Cisco's Storage Network Area Initiatives

Cisco has released a portfolio of storage area network solutions in the recent past. Its MDS software and storage services enable a single operating system across storage services. Its MDS Series Multiservice Switches provide convergence in a storage network. Cisco's storage network products such as SAN extension are made available to Original Storage Manufacturers (OSMs). Its Port Analyzer Adapter allows for efficient traffic in the storage areas network.

The newly launched solutions include a Multilayer Director, which provides three times the bandwidth of any competing products. The Multiservice Fabric, another of the new solutions, performs crucial functions in the storage area network.

"Today's announcement cements Cisco's technology leadership in the storage director market," said David Yen, Cisco's vice president of the Data Center Group. "Cisco continues to deliver the greatest depth and breadth for an end-to-end data center fabric. Together with our ecosystem of partners, we are reshaping the data center into an IT linchpin that transforms business continuity and operation for customers, one that is critical in today's competitive business environment."

The storage area network products are important to Cisco for revenue generation in 2013. With the rising growth in the big data market and the increased demand for data storage, Cisco is poised for sales growth and gaining an advantage over its rivals. We saw how the company's data center sales grew overall revenues. It is clear the company's net sales have been improved in comparison to 2011 figures, so it can be said the company is operating its data center business efficiently.

With a price to earnings ratio of 11.72, Cisco is trading surprisingly cheaply, especially given its impressive 60.70 gross margin in its most recent fiscal year. The new products will increase overall data center business revenue, thereby improving Cisco's EPS of 1.74. Investors will benefit from robust earnings that establishes a new benchmark for performance.


So how is Cisco performing in relation to others in the storage area network market? With an EPS of 1.74, compared to -0.78 for the Alcatel-Lucent (ALU), -6.55 for Hewlett Packard (NYSE:HPQ), and 1.23 for EMC (EMC), a gross margin of 60.70%, compared with 30.44 for Alcatel-Lucent and 22.32 for Hewlett Packard, Cisco is doing better than the rest. EMC's Isilon Archive Solution for Big Data will compete with Cisco's new products. The EMC product protects against data loss and implements disaster recovery. Cisco's solutions perform the same function and also deliver efficient performance, scalability, and reliability. Hewlett Packard's StoreServ 7000 is another competitor to Cisco's solutions. Its aims to tame and mine consumers' content explosion. However, Cisco's products match this feat and go on to provide storage connectivity for mission-critical operations.


Based on the performance of Cisco's data center products and the growth prospects in the storage area network market, we can say the new products will improve Cisco's price multiples. Looking at the company's improving numbers, we can say Cisco is a good buy at the moment

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.