Thursday, December 12, 2013

Cisco Resets Long-term Growth Forecast to 3-6%

In its annual financial analyst conference, Cisco reset its long-term forecast to 3-6% annual growth over the next 3-5 years, down from the 5-7% range it had long held.  The long-term earnings per share growth forecast was also lowered to 5-7% from the previous target range of 7-%

Cisco executives cited historic transformations underway in the networking business as well as persistent challenges in emerging markets, such as Russia and Brazil, and ongoing issues in China.

Cisco's core switching and routing business is expected to remain flat to up 1% over the 3-5 year horizon, said CEO John Chambers and Chief Financial Officer Frank Calderoni.

Some reporter notes from the webcast:

  • Areas of relative strength include data center, wireless, security and switching business.
  • Areas of relative weakness include sales in emerging markets, sales to Service Providers, and product transitions in routing and switching. Cisco continues to see macroeconomic uncertainty and difficult Service Provider market dynamics as ongoing headwinds.
  • In its last quarterly call, Cisco forecast that sales for this quarter will be down 8-10% down on a YoY basis.
  • Major growth drivers for Cisco going forward are cloud, mobility, security, services, software and the Internet of Everything.  Cisco has recently announced its Application Centric Infrastructure for next-generation data centers.
  • Cisco believes its main competitors continue to lack breadth and fail to define a total solution architecture.
  • Cisco will increase R&D spending in growth areas, including data center, mobility, security and services.
  • Cisco believes the SDN market will play out to its advantage because it will be necessary to embrace a full application-centric infrastructure to really deliver fast network programmability.
  • Cisco believes that network architecture is fundamental to its competitive differentiation.  Architectures are defined by ASICs + Software + Hardware + Services. Core routing and switching remain the foundation for Cisco.
  • Cisco believes there will be no "whitebox" SDN cost advantage compared with its branded switch with integrated hw/sf.
  • Since launching its Nexus 9000 switch five weeks ago, a pipeline of about 300 customers has developed.  Most deals are in the $100K to $1 million range.
  • Cisco's last 13 acquisitions have been in the software or cloud space.
  • Today, cloud infrastructure and services represent about 8% of the overall $2.056 trillion total IT market.  By 2017, Cisco expects cloud infrastructure and services to represent 14% of the market, which is expected to be in the $2.4 trillion range for total IT spending.  This means the total addressable market for Cisco Cloud products and services is $42 billion by 2017, compared to current Cisco sales of $22 billion for cloud products/services in 2013.
  • Hardware accounts for less than 30% of data center infrastructure spending. Labor, software and energy costs make up the rest.
  • Cisco believes the Internet of Everything will be the next big trend representing a multi-trillion dollar opportunity.
  • Cisco will strive to be more of  "services-led company" but is not transitioning into a service
  • Cisco continues to have a strong balance sheet.
  • Regarding the ongoing NSA scandal and its potential impact on Cisco in emerging markets, Chambers reiterated that Cisco does not design any unique capabilities into its products for any government and it does not give anybody access to its code. He said the NSA situation is continuing to have an impact in one market (China), but that talking to customers about security in other emerging market is just part of the sales cycle.

Archived materials from the full-day conference are online.

See also