Cisco claims it’s held off the threat of white-box switches in webscale data centers, at least for now.
In fact, in reporting third-quarter earnings today, the company noted that its switching represents more than half of its sales to that webscale group. That’s noteworthy, because the reputation of hyperscale players — Facebook, Google, and the like — is that they prefer home-built, white-box switches.
It’s also noteworthy because Cisco‘s switching business was down overall in the quarter (3 percent year-over-year), as was its routing business (down 5 percent).
Overall, Cisco managed to turn out numbers that pleased investors. Its stock is up roughly 6 percent at $28.63 in after-hours trading tonight. But it still faces a difficult economy. Despite being more upbeat on today’s earnings call than on last quarter’s, CEO Chuck Robbins noted that the company is still proceeding with caution.
A $1B Business?
Cisco isn’t disclosing how much business it does with the cloud titans (a phrase borrowed from Arista, which also doesn’t disclose this number). But third-quarter sales to the top 10 players in that group rose 31 percent compared with the same quarter last year, Cisco CFO Kelly Kramer said on today’s call.
Analyst Simon Leopold of Raymond James believes webscale customers amount to 2 to 4 percent of Cisco’s sales. That amounts to $1 billion to $2 billion and probably makes Cisco the top networking vendor to that sector, Leopold wrote in a research note last week.
Asked about that on today’s call, Robbins pointed out that webscale customers are not enamored with white-box switches for their own sake. They’re looking at a specific goal first — namely, automating the operations and lowering the costs of these massive data centers — and picking the technology that fits.
“We’ve been focusing on attacking the business driver and not the tech trend everybody writes about.” That led Cisco to build “some really aggressive products,” and even though those products use ASICs rather than the off-the-shelf switching chips used by white boxes, they’re gaining some acceptance, he claimed.
Robbins added that this desire for more automation is likely to “become the norm for all customers.”
Running the Numbers
For its third quarter, ended April 30, Cisco reported revenues of $12 billion compared with $12.1 billion in the same quarter a year ago. (The year-to-year comparison is skewed by Cisco’s set-top box business, which got sold to Technicolor last year.)
Cisco reported net income of $2.3 billion, or 46 cents per share, compared with year-ago net income of $2.4 billion, or 47 cents per share.
Non-GAAP net income of 57 cents per share beat the 55 cents predicted by Thomson Financial.
Cisco’s call was upbeat overall — which was a little odd, BofA analyst Tal Liani noted during the call, considering Robbins’s economic predictions weren’t any sunnier.
Most networking companies seem to agree the economy feels shaky. Juniper warned in April that its first-quarter earnings would be even weaker than expected. Delays at one of its service provider customers turned out to be a factor, but the company also pointed to weak enterprise sales.
Brocade, which reports earnings tomorrow, is likewise predicting gloominess, thanks partly to “IP networking headwinds.”
What did Cisco do to get out of the woods? It might be just a matter of leaving January behind. The company’s most recent earnings call happened in February, right after some wild swings in the stock market. “We saw our enterprise customers, especially, hit the brakes,” Robbins said. Service provider business slowed as well.
The market has calmed down since then, but geopolitical factors, such as Great Britain’s potential exit from the European Union, or the U.S. presidential elections, mean “we still are operating in a very uncertain environment,” he said.
Gratuitous ACI Mention
In the second quarter, Cisco said sales of its Application-Centric Infrastructure (ACI) had doubled year-over-year, putting the product at a $2 billion annual run rate. For the third quarter, the company said ACI business doubled year-over-year again and has now reached a $2.2 billion run rate.