Following the Feb. 15 announcement of what was generally considered a so-so second-quarter fiscal 2017, Cisco (NASDAQ: CSCO) stock has climbed 4%. That might surprise some investors, but it appears the market has opted to focus on what Cisco is doing right as it transitions from a reliance on legacy hardware to a focus on up-and-coming markets including software and cybersecurity.
Cisco has recently unveiled its latest data security solution -- the Firepower 2100 series firewall, which it describes as "a fully integrated, threat-focused next-generation firewall built for the midsize business." The next-generation firewall (NGFW) is "threat-centric," which Cisco described as meaning it's focused on "deeply inspecting the traffic that does come through the firewall," rather than simply making the firewall incrementally better.
Sales of Cisco's traditional switches and routers declined 5% and 10% last quarter, respectively. However, thanks in part to a 14% jump in data security revenue to $528 million and a 4% year-over-year improvement in collaboration software revenues to $1.06 billion, Cisco's total sales of $11.58 billion were just 2% less than a year ago.
Though Cisco's transformation to a software-centric business model is clearly working, it is data security that could propel its stock in the months and years ahead. According to a recent estimate, IT departments will spend $1 trillion on cybersecurity solutions between now and 2021. And Cisco's security product line-up, which now includes its new Firepower 2100, is poised to lead the data security wars.
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Tim Brugger has no position in any stocks mentioned.