Follow Cisco Into The Fog

| About: Cisco Systems, (CSCO)

Executive summary:

  • Cisco wants fog computing to be a "fourth platform for computing."
  • This will assist with the deployment of the Internet of Everything, or IoE, across numerous industries and sectors.
  • Cisco wants to be the leading provider for the infrastructure of the Internet of Things, or a IoT, a subset of the IoE.
  • Shares are cheap, especially after the post earnings drop.


In the age of big data, the majority of data is delivered continuously in large volumes among a large amount of users and devices, which often widely disperses it. To solve this problem going forward, Cisco (NASDAQ:CSCO) is introducing a new concept that it hopes will collect all of this largely dispersed data, uniting it with services and applications, to create a distributed computing architecture, called IOx. Cisco's IOx implements fog computing, which it defines as something that:

"...supports emerging Internet of Things applications that demand real-time response and predictable latency such as industrial automation, transportation, networks of sensors, and actuators. Thanks to its wide geographical distribution, the Fog model is well positioned for real time big data and real time analytics."

Making the cloud foggy

With IOx, Cisco is basically looking to offer data, memory, services, and computing power at a distributed level, bringing it closer to users. It also wants to remove network-related delays and other problems involved with data transfer.

In essence, a drop (a chip of a micro-controller with built-in memory and a data transfer interface) combines with a wireless connection Mesh chip. These drops make it possible to create a distributed global network of data and devices.

Fog computing also provides the capability to turn a local data center into a distributed cloud platform for users. It will be a complimentary addition to the cloud, one that will allow data to be stored much closer to a user by using drops to isolate it within cloud systems.

Fog computing and the IoT

Creating distributed computing infrastructure for applications can tap into the billions of connected-devices that already make up the IoT, or Internet of Things. Applications closer to where data is actually generated makes it much easier for customers to manage massive amounts of data and derive more value from it.

Cisco estimates that by 2020, there will be over 50 billion connected devices, which will continue to generate enormous amounts of data. Cisco wants to take advantage of this trend by setting a standard with IOx.

If IOx catches on, customers from all segments and industries will possess the capabilities to develop and manage software applications that will run on Cisco's industrial networked-devices. Combine this with the closer proximity of the data source, and more value can be derived with automated responses, such as: Smart energy distribution, smarter traffic lights, and self-maintaining trains that can detect heat levels or problems and alert an operator of any emergency maintenance needs.

Cisco's fog
According to Guido Jouret, general manager of Cisco's IoT group:

"Cisco is very excited to accelerate innovation in the Internet of Things by delivering IOx, which provides the ability to combine computation and communication on our ruggedized routers and other devices... We believe that this turns the network into the fourth platform for computing (in addition to PCs, mobile and cloud), which will unleash new applications in manufacturing, transportation, smart cities and many other industries."

The company is very bullish on the IoE, IoT and now Fog computing. It thinks that these trends will completely transform sectors such as manufacturing and transportation as well as create more efficiency in the public sector.

Cisco's IOx will combine the open source Linux OS with its own IOS network operating system in a single device. This will assist with the spread of the Internet of Everything.

Focusing on the IoT
Cisco is one of today's tech companies that thinks the IoT, as a subset of the Internet of Everything, will be one of the biggest game-changers in the tech industry since the Internet itself. It's also one of the few tech companies that has dedicated an entire business unit to it.

As more smart devices and sensors connect to the Internet, the IoT (and subsequently the massive amounts of data generated from it) will expand rapidly. Cisco wants to continue to build out the infrastructure for the IoT and remain as the leader. Or as Roberto De La Mora of Cisco wrote:

"For industrial IoT environments Cisco is now enabling the network infrastructure to play for industrial sensors the part that the smartphone plays for personal gear... In essence, Cisco is enabling access to computing and storage resources within the network devices to host applications and interfaces as close as the devices as possible, thus enabling Fog via the network."

This is why fog computing is important for the adoption and widespread roll-out of the IoT, and also the overall IoE.

The bottom line
The infrastructure for the IoT is where Cisco's focus is, and also where it envisions itself going forward. The IoT is estimated to be worth trillions over the next decade.

If you believe that success in this going forward can help reverse the company's currently weak growth, shares look cheap at current levels, trading at just 12 times earnings and a little over 10 times forward earnings. The company also just boosted its dividend by about 12%, and shares will pay you to wait, yielding well over 3%.

Disclosure: I am long CSCO. 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.