Cisco is still clawing its way back to growth, but the company is encouraged by what it says are strong early sales for the Application-Centric Infrastructure (ACI), Cisco’s answer to SDN.
That was one message out of Cisco’s third-quarter earnings call with analysts today. The number of ACI customers “‘grew from 20+ customers last quarter to 175 this quarter, with a pipeline approaching 1,000 customers,” CEO John Chambers said on the call.
A couple of caveats. One hundred seventy-five customers is barely an ink smudge on the Cisco customer roster. And the number appears to count all customers of the new Nexus 9000 switch line —meaning it includes the “standalone mode” customers that will run the switches in traditional, non-SDN ways.
In fact, the majority of customers seem to be doing just that. Cisco noted that more than 50 customers are running ACI in simulation mode. (ACI won’t be deployable until the Application Policy Infrastructure Controller (APIC) software comes available, which is due to happen by June 30.)
That said, Cisco does intend to announce two big-deal ACI customers at Cisco Live next week, said Rob Lloyd, Cisco’s president of development and sales, during the earnings call.
Claiming an SDN Comeback
Chambers claimed Cisco is beating back the early SDN competition that came from VMware and what he termed “a small startup” it acquired (Nicira, basically). “We’re taking almost all those [customers] back; momentum feels really good on that,” he said.
When it comes to the bottom line, though, the Nexus 9000 isn’t yet selling in volumes large enough to matter. That’s an important point, because Cisco is counting on new, high-end offerings to push product margins back up. Cisco’s gross margins reached 62.7 percent in the third quarter, but Cisco characterized that as a fluke, saying gross margins should be 61 to 62 percent (closer to what analysts were expecting) in the fourth quarter.
Chambers said the pricing pressure that Cisco’s switches are experiencing isn’t the result of SDN; rather, it’s a byproduct of competition in campus switching. Chambers said his real worries when it comes to switches are the sales mix (because selling too many low-end switches would dent margins) and the danger of purely price-based competition in emerging markets, because in those cases, Cisco’s new philosophy of selling architectures just won’t play.
Separately, Cisco signed General Motors as the first customer under the new licensing program announced in March. Rather than purchase Cisco gear box-by-box, GM now holds “a software catalogue that they prepaid [for],” Cisco CFO Frank Calderoni said on the earnings call.
Running the Numbers
Cisco beat Wall Street’s estimates, but its third-quarter revenues of $11.5 billion were still down from $12.2 billion in last year’s third quarter. Analysts were expecting revenues of $11.36 billion, according to Thomson Reuters I/B/E/S.
Revenues for the fourth quarter will be down 1 to 3 percent from the previous year’s fourth quarter, Cisco said, meaning they’ll be $12 billion to $12.3 billion.
Cisco’s net income for the third quarter was $2.2 billion, or 42 cents per share, compared with $2.5 billion, or 46 cents per share, a year ago.
At press time, Cisco shares were up $1.57 (7%) at $24.39 in after-hours trading.