Has Cisco Got The Right Stuff?

John Chambers, who handed control of to Chuck Robbins in July 2015, was bumped further upstairs a month ago when he became Chairman Emeritus, while his successor took over his role as Chairman of the Board, but more than a change in leadership, the turnover represents a new — and hopefully — improved networking, server and vendor. The company, which has been struggling with the cloud and commodity hardware and software-based competitors for the last decade, looks poised for new life — and growth — as it hosts this week’s Cisco Live EMEA 2018, in Barcelona, Spain.

Reinventing Cisco is not new. “We’re probably reinvented ourselves five or six times literally in the last two decades alone,” said Chambers shortly after moving up to the board. In an industry famous for it’s what-have-you-done-for-me-next philosophy, networking has been battered by explosive demands, increasing complexity and flat budgets, with the results that Cisco’s market domination has been mired in commodity hell. In Q3 its Ethernet switching business grew 7.4% year-over-year to $6.75 billion (56.7% market share), while the router market climbed 3% to 41.4%, up slightly sequentially (40.8%), but down year-over-year (44%).

While networking accounts for the bulk of Cisco’s revenues, it’s been doing pretty well in the market with its server portfolio (i.e. UCS and HyperFlex), statistically tied with for third place in 3Q17, with 5.8% of the market ($992 million), behind HPE (19.5%) and Dell (18.1%). Cisco also did very well in the market, and while it’s a much smaller segment, $2.99 billon vs $17 billon in Q3, the company held down second place between Dell (48.3%) and HPE (10.3% share, down 41.9% from a year-ago’s 18.1%), and grew its marketshare 56.4% YoY to $485.5 million.

Security is another market where Cisco is growing strongly. Cybersecurity spending is expected to soar from last year’s $137.85 billion to $231.94 billion by 2022, at a Compound Annual Growth Rate (CAGR) of 11.0%. According to ESG cybersecurity guru Jon Oltsik, “Cisco is one of only a handful of $2 billion-plus cybersecurity vendors that can grow its security revenue to over $5 billion by 2020.”

At 4% of total revenues, the company’s security business is never going to be more than a wagging tail, but it grew 13% YoY in 2016, and 12% in the first nine months of 2017, which is way better than the switch and router business. A week ago Cisco expanded its cybersecurity portfolio with the acquisition of Skyport — a privately held company that has secured approximately $70 million in funding — whose core product platform is SkySecure Server, a physical server platform that provides an end-to-end set of .

While Chambers and company have been talking about reinventing Cisco on a regular basis it’s really just the past couple of years that Cisco has been in transition mode, said Zeus Kerravala, founder and principal analyst of ZK Research. He called Robbins’ performance of pulling a “rabbit out of the hat” a combination of “good, old-fashioned leadership and making the right decisions in the following areas:”

-doing what’s right for customers instead of what appears to be best for Cisco;

-if there is an industry shift that’s good for the customer, particularly in the area of networking, Cisco’s role should be to help them and not hold them back;

-acquisitions, acquisitions and more acquisitions;

-embracing the cloud;

-Cisco also has also extended many of its products, such as ACI, to reach into ;

-goin all in on ;

-Cisco has made a number of acquisitions in AI, including , and AppDynamics, which complement its own internal efforts in this area; and,

-easy, peasy, lemon squeezy: Robbins promised that Cisco would do the work to mask the complexity from its customers and the company has held true to his words.

Kerravala calls out two areas where Cisco can “move the needle on a company that’s nearly $50 billion in revenue”: services (its second-largest revenue stream) and security (it’s the largest enterprise-focused security vendor, but only holds 5% of the overall security market). He expects the recently announced ‘Business Critical Services’ to experience strong customer uptake, while it “won’t take much to double or even triple the security revenue”.

Looking back, I’m sure it’s nice for Robbins to see the hard work pay off, but I doubt he will spend much time reflecting on the past,” said Kerravala. “The world is changing faster than ever, and his task is to step on the gas and make sure Cisco’s pace of transformation continues.”

The Fiddly Bits

The company kicked off the new year with a number of announcements, both during and leading up to Cisco Live EMEA 2018, including new and improved offerings for containers, hyperconvergence, predictive analytics (assurance), and cybersecurity (ETA).

Yesterday the company announced the Cisco Container Platform, ‘a turnkey, open, and production-grade software container platform to address customers’ growing need to have applications seamlessly run the same way on premises and in public clouds.’ The platform will be available as: software optimized with Cisco HyperFlex 3.0 in April; and as software supported on VM infrastructure, bare metal, public cloud this summer, with subscription-based pricing determined by the number of cluster nodes deployed

The vendor also announced this week assurance innovations across its intent-based networking portfolio that ‘will address the 43% of time IT spends troubleshooting, while making IT operations more proactive, agile and automated.’ The Cisco Network Assurance Engine is available now, initially for Cisco ACI customers, with a free, 30-day, no-commitment trial; Cisco DNA Center Assurance is available now; and Cisco Meraki Wireless Health is expected to be available shortly.

Cisco also updated its HyperFlex hyperconverged platform with software release 3.0, and enhancements to Encrypted Traffic Analytics, which was announced in June. ETA, which has been in customer field trials, is now generally available, and support has been extended beyond campus switching to the majority of its enterprise routing platforms.

ETA solves one of the biggest cybersecurity problems, finding malware in encrypted traffic, wrote Kerravala recently.’One of the dirty little secrets of the security industry is that most malware is only a slight deviation from existing malware. The right algorithms with the right data can identify the encrypted traffic that might contain malware. That traffic can then be sent to advanced security tools, such as Cisco Stealthwatch, for further investigation and cleansing.’

Cisco’s ETA uses a combination of telemetry information generated by Cisco network infrastructure and machine learning algorithms to look for the differences between good and possibly infected traffic. It provides ‘some badly needed help to overworked security teams, as it solves one of the biggest problems in cybersecurity today.’

DISCLAIMER: I hold shares in Cisco and other companies mentioned in this article.

Author: Steve Wexler

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