Server business helps Cisco keep profit growth

Cisco, the networking equipment giant and the server maker, released its latest earnings in Wednesday, and its earnings show that, while it has a long way to go and a lot of competitors, it is heading in the right direction.

What direction does Cisco go? Its aim is to increase the importance and competitiveness of its core switch and router business, which has helped it maintain good performance by cutting down the cost of its employees in the third quarter.

Cisco's quarterly revenues reached $11.26 billion trillion, up 4.7% per cent year-on-year, in the first quarter of fiscal year 2012 as of October 29. Product sales revenue of 8.95 billion U.S. dollars, only 2.9% year-on-year growth, service sales revenue of 2.3 billion U.S. dollars, the year-on-year growth of 12.4%.

Even excluding research and development costs, its sales, marketing and administration fees have increased, and Cisco has also credited a $202 million trillion in costs related to layoffs and other adjustment measures. Cisco plans to cut 6,500 employees and then cut 5,000 more employees by selling one of its factories to Foxconn, the Chinese manufacturer. Cisco has laid off more than 8,400 employees by the end of the first quarter.

These costs have hit Cisco's profits, causing Cisco's first-quarter net profit to fall 7.9% to 1.78 billion dollars year-on-year. If the impact of adjustment spending is removed, Cisco's net profit for the first quarter should be flat from the same period last year. This is slightly better than expected, but its profits are still falling. In an analyst conference call, Cisco's chief executive, Chambers, said the company is currently focusing on improving profitability.

Although Cisco wants to do well in the server sector, it is still a manufacturer of switches and routers, and now it is already feeling a lot of pressure in both markets.

In a conference call, Chambers said orders for the first quarter grew by 10%, but only 3.67 billion dollars, flat from a year earlier. High-end Nexus 7000 aggregated top-row switches have a 2 increase in gross profit margins, which are still less profitable than the catalyst products it replaces.

The profit margin of the top Nexus 5000 switches and various derivative products (structural extension products and blade switches) has increased by 4 points. Chambers said orders for the Nexus 7000 and 2000 products increased by 120%, with annual revenues of about $1 billion.

Orders for Cisco's various router products grew by 7%, but the corresponding revenue fell by 3%. Sales of high-end routers increased by 4%, but sales of other products fell by 16%.

Cisco's various collaboration tools sell at 1.09 billion dollars. Service provider-oriented video products sales revenue of 879 million U.S. dollars, an increase of 13%, wireless products sales revenue of 362 million U.S. dollars, the year-on-year growth of 8%.

The unified computing system blade and rack servers and associated pooling switches and management tools were incorporated into Cisco Data Center products, with orders growing by 122% and sales at $259 million, up 116%.

Unified Computing System products of the annual sales revenue of 1 billion U.S. dollars. Cisco added 1572 new users of unified computing systems in the first quarter, and the total number of users on the unified computing system increased to 8,983.

To give readers a clearer picture, Oracle revealed that its SPARC devices have more than 60,000 users, and that the number of x86 servers is hundreds of thousands of. The number of clients does not represent everything, but if Cisco's users grow at a high rate, it is no doubt that it will have a revenue scale of $ billions of trillion in its unified computing server and switch business over the next two years.

From a regional point of view, Cisco's business in Japan has grown unexpectedly by 43%. Japan is now being merged into the Asia/Pacific-Japan-China region, where revenues account for 16% of Cisco's revenues.

Sales in the U.S. Rose 9%, but sales in India were down 24%. Sales in Russia rose 7%, Brazil's sales rose 28%, and China's sales rose by 27%.

While Cisco is concerned about the competition it faces in the switch and router markets, it is not going to cut prices to ensure the competitiveness of products, but to ensure competitiveness through technology and customer relationships, Chambers said. This is also a very similar strategy to IBM, that is, through marketing and customer relationship management to ensure competitiveness. But Chambers will not turn a blind eye to Cisco's biggest threat, and Cisco's biggest competitor is China's Huawei.

"We have to focus on China's Huawei," Chambers said. Huawei always competes with us in product prices, and it is our strongest competitor for the next 4-5 years. "Huawei has just launched a reseller channel program in the US, and Chambers has pledged that Cisco will make a big push in the United States," he said.

Of course, Huawei also has the advantage of local combat, that is the Chinese market.

In the second quarter, Cisco expects revenue from the second quarter to be around $11.13 billion trillion to $11.24 billion trillion, with a year-on-year growth rate of 7% to 8%. This is a relatively accurate forecast, which shows that despite some problems in Europe's economy and government spending cuts, Cisco remains confident.

(Responsible editor: The good of the Legacy)