Legacy networking hardware vendor Cisco Systems Inc. (CSCO) saw its shares rise 15% over the course of this year, as investors remained optimistic in the old guard tech firm’s transition to meet the demands of an evolving tech space. (See also: Cisco Alters Revenue Models, Ups Efficiency.)

Transitioning to Cloud, IoT

Throughout 2016, Cisco has focused on bolstering its position in growth markets such as the booming cloud and Internet of Things (IoT) spaces. Cisco aims to harness the cloud space, which it says will quadruple by 2020. As part of this initiative, the firm has announced the launch of a pay-as-you-go cloud service for smart cities using IoT technology.

Earlier in December, Cisco chose to terminate its $1 billion public cloud project by March 2017, conceding to market leaders dominated by Amazon.com Inc. (AMZN), and choosing to instead focus on “helping customers build and manage hybrid IT environments.”

Cisco Chief Digital Officer Kevin Bandy also spearheaded an initiative this year to streamline the firm’s 70-plus different autonomous revenue models, in order to reduce costs and reinvest in long-term growth.

Cisco Optimistic on Q3 Beat

In the firm’s most recent fiscal 2017 first quarter, posted mid-November, Cisco saw its legacy switching business decline 7%, as total sales declined 2.6% over the same period last year. Bulls suggested the switching declines were industry specific, while those less optimistic indicate Cisco is losing out to arch-nemesis Arista Networks Inc. (ANET), which was founded by a team of former Cisco execs.

Investors were pleased with Cisco’s adjusted earnings per share (EPS) of $0.61 which beat the Street’s expectations. Overall, investors were initially discouraged with current-quarter guidance indicating non-GAAP​ EPS to come in at $0.56 at the midpoint, on revenues that represent a 3% decline on a year-over-year (YOY) basis.

Looking Ahead

Cisco Chief Executive Chuck Robbins urges investors too look beyond one quarter, indicating general weakness in larger service providers causing a temporary slump. Robbins highlighted 5% growth in the firm’s global enterprise business, along with a 48% increase in the subscription and SaaS space and strong growth in security and collaboration.

Moving ahead into 2017, we can expect the tech giant to shift reliance off traditional hardware sales of networks and routers, to invest in the budding markets of enterprise security, IoT, cloud and collaboration. (See also: Cisco Systems’ 2 Growth Markets for 2017.)


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