- Cisco's turnaround has taken off well and the company looks set to get better going forward.
- Cisco's Intercloud strategy could be a strong growth driver going forward.
- The Internet of Things is yet another big opportunity for Cisco, and it has already started investing in start-ups to benefit from it.
After being subdued in the initial part of the year, Cisco (NASDAQ:CSCO) seems to be in turnaround mode. The company had started the year on the back foot after cutting its growth forecast in December last year. However, after strong third-quarter results, it seems Cisco is making a comeback.
The turnaround begins
Cisco's financial results exceeded its guidance for the last quarter as it demonstrated solid progress on returning to growth. Cisco experienced strength across a number of areas of its business throughout the globe. From a geographic perspective, total U.S. product orders grew 7% with U.S. commercial and U.S. enterprise both up over 10%. The momentum in the U.S. enterprise and commercial segments remains very strong.
For example, in the U.S. enterprise, total deals over $1 million were up over 25% from the beginning of Q3 to the beginning of Q4. Deals over $5 million increased more than 50%. Its enterprise customers are making more and bigger investments as they partner with Cisco on a continuous movement towards solutions. There's a continued stabilization across Europe with order strength in the U.K. up 7%, Germany up 5%, and northern Europe as a whole up 4%.
Cisco's new service provider platforms are showing good momentum from a product perspective. It has recently introduced disruptive high-end products in the market. Its high-end router orders are expected to improve as a result. For example, the Nexus 9000 and its application-centric infrastructure is gaining significant traction.
Cisco is shipping new application-centric infrastructure i.e. ACI enabled platforms, specifically the Nexus 9000, that increased from 20-plus customers last quarter to 175 customers. The pipeline for this product is approaching 1,000 customers. Cisco enjoyed major wins including competitive wins and displacements at large financial institutions, large cloud providers, software-as-a-service and major service providers.
InterCloud to drive growth
Going forward, Cisco is looking to drive innovation and is making bold moves to lead major market transitions. For the cloud, it announced its InterCloud strategy, leveraging its application-centric infrastructure together with its partners to deliver the first global open network of clouds. Customers, providers, and channel partners are using Cisco's solutions to create an open and highly secure hybrid cloud environment.
Cisco has successfully entered into several partnerships in delivering converged infrastructure such as VCE and FlexPod, leveraging application-centric infrastructure and the InterCloud fabric. As a part of its InterCloud strategy, it will deliver a portfolio of Cisco cloud applications and services. The Cisco cloud applications, which are already in the market, mainly WebEx and Meraki, continue to perform well. Meraki, its cloud networking business grew over 150%, with the customer count growing approximately 30% sequentially.
Cisco is cementing its position as the number one cloud infrastructure provider. It continues to be optimistic about the future opportunity as its customers embrace cloud, mobility, social, analytics and the Internet of Everything. Cisco is helping customers design secure and optimized cloud solutions, providing industry-leading security for their mobile workforce and access data from anywhere to speed decision-making among other solutions.
The technology giant is trying to deliver innovation at a faster pace than any time in its history. This includes the new high-end switching and routing platforms, the recently announced InterCloud strategy, new collaboration portfolio, new pervasive security offerings, new data analytics, self-learning networks, services in all delivery capabilities, IoE and much more. Apart from innovation in technology, Cisco is making changes to deliver value to its customers by leveraging integrated architecture software and services.
The Internet of Things Opportunity
The Internet of Things is another big opportunity that Cisco is looking to tap. As reported by Bloomberg earlier this year --
Cisco Systems Inc. Chief Executive Officer John Chambers said that the Internet of Everything -- connected products ranging from cars to household goods -- could be a $19 trillion opportunity.
To tap this huge opportunity, Cisco recently invested $150 million in Internet of Things startups. According to San Jose Mercury News --
Cisco Systems announced Wednesday it will invest $150 million into early-stage companies so the networking giant can foster -- and benefit from -- emerging and disruptive technology trends.
San Jose-based Cisco will dump millions into startups and startup accelerators that are part of an emerging technology revolution that aims to connect up to a trillion ordinary things -- from dishwashers to coffee makers and airplanes -- to the Internet. The Internet of Things, as industry experts call the trend, will revolutionize homes and businesses -- homeowners may get a text message when their water heater needs to be replaced and vintners could get automatic alerts when grapes are ready to harvest -- and Cisco wants to be part of the booming market.
Hence, taking a look at the different moves that Cisco is making, there's no doubt that the company is effectively executing on its turnaround. Additionally, Cisco's valuation is quite attractive and points toward improving earnings. The trailing P/E and forward P/E ratios are 16.44 and 11.33, respectively, indicating earnings growth. Also, Cisco pays a strong dividend yield of 3.10%. Thus, all in all, Cisco looks like a good stock to invest in as its turnaround is progressing well.
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.