Cisco Systems Inc. (CSCO) has initiated a wide-scale restructuring over the past year, looking to shift away from reliance on its core hardware business and expand into emerging growth markets.
Once a high-growth tech stock, the old-guard networking provider is much more of a solid play for income-minded investors. After posting a 2.6% revenue decline in the most recent fiscal first quarter, investors were initially displeased with current-quarter guidance indicating a 3% revenue decline year-over-year (YOY). While traditional switching sales slumped 7% in the most recent quarter, management remains optimistic regarding these two high-growth sectors. (See also: Analysts: Cisco Losing Out to Arista.)
As the global tech leader’s fastest-growing division, cybersecurity has the ability to position Cisco for sustainable growth as the firm innovates to protect its networking hardware and software from external attacks. In order to scale, Cisco acquired a number of smaller cybersecurity specialists including CloudLock, OpenDNS and Lancope, competing with next-gen vendors like Palo Alto Networks Inc. (PANW) and FireEye Inc. (FEYE).
Cisco’s Security segment reported 11% growth in the most recent quarter, after sales last year rose 13% to $1.97 billion. Cisco Chief Executive Chuck Robbins says its “integrated architecture approach and best-in-breed portfolio” will drive recurring subscription-based revenues. We can expect Cisco to continue snatching up cybersecurity players, with rumors recently spreading of its interest in Imperva Inc. (IMPV).
The Internet of Things
The San Jose, Calif.-based company has pushed into the disruptive Internet of Things (IoT) industry, facilitating the communication between billions of connected devices, including mobile devices, smarthome appliances, connected cars, drones and the cloud. Cisco foresees cloud traffic quadrupling by 2020, estimating the number of connected devices to double from 25 billion in 2015 to 50 billion in four years.
In February, Cisco completed its acquisition of IoT platform Jasper Technologies in a deal worth $1.4 billion. In the connected-car market, Cisco has announced a partnership with Hyundai to develop in-vehicle network tech for high-speed data transfers. Further, Cisco’s latest smart city cloud-based solutions gear cities with real-time data, improving decision making at multiple levels of organizations. As the legacy networking firm expands into various markets with IoT solutions, it will hold a competitive edge by bundling its IoT services with routers, switches and UCS (Unified Computing Systems) servers. (See also: Analysts Take on Cisco’s Weak Q2 Forecast.)