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Cisco's 55 consecutive quarter growth of service revenue is over, but ...

May, 18 2017, 2:11 PM

Editor's note: Cisco services revenue growth hits a pothole after 55 consecutive quarters of year-over-year expansion, but security and data analytics are coming to the rescue, says Technology Business Research Analyst Kelly Lesiczka. In announcing earnings on Wednesday, Cisco also announced another round of layoffs as the tech firm continues to transition toward more software and services solutions. Cisco operates one of its largest corporate campuses in Research Triangle Park, N.C.

HAMPTON, N.H. - Cisco Services revenue declined (2.2% YTY) for the first time since 1Q03 as the company transitions to a software- and subscription-based model. The decline was partially attributed to the previous year ago quarter having 14 weeks vs. 13 weeks this year. However, growth in deferred services revenue (6.8% YTY) shows Cisco is beginning to benefit from its investments in analytics, security and software-based services and create future recurring revenue streams.

Additionally, developing partner networks for service delivery and an emphasis on subscription-based services as well as the integration of machine learning technologies lowered cost of services to improve services gross profit, up 100 basis points to 66.9%.

We expect continued investments in next-generation technologies, similar to acquisitions of Saggezza and MindMeld to support the company’s transformation and contribute both revenue and profits across the service spectrum across the upcoming quarters.

Leveraging recent investments in Cisco’s security expertise will provide Cisco Services with future opportunities to work more closely with clients, including government agencies to develop and implement security services, as well as upsell existing clients to secure digital- and cloud-based environments.

In February Cisco launched Cisco Umbrella for Service Providers, an extension of its Cisco Umbrella security service which integrates cloud security to improve secure cloud, network and device environments. During the quarter Cisco opened a Security & Trust Office (S&TO) in Germany and a Cyber Range Lab in India to appeal to demand for security services.

On May 4, Cisco announced its intent to acquire the advanced analytics team of Saggezza, a U.S-based technology services company. TBR expects the addition of Saggezza's platform analytics experts with specialized expertise in cloud and secure platform development to strengthen Cisco’s advanced and advisory services capabilities.

Cisco’s acquisition improves its position to deliver analytics services for clients by enabling transformation and business insights to drive value.

(C) TBR





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