Robust switching sales power strong quarter for Cisco

Wed Feb 11, 2015 6:43pm EST
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By Anya George Tharakan and Arathy S Nair

(Reuters) - Network equipment maker Cisco Systems Inc (CSCO.O: Quote) reported stronger-than-expected quarterly revenue and profit as demand for switching equipment and routers helped to make up for weak spending by the company's traditional telecom customers.

Cisco, whose shares were up 5.6 percent in extended trading on Wednesday, has been trying to make a transition toward a new cycle of high-end switches and routers.

The switching business, which makes products that handle traffic at large internet data centers, brought in about 39 percent of Cisco's total hardware revenue in 2014, while the router business accounted for about 21.2 percent.

"They are seeing very robust switching sales," Needham & Co analyst Alex Henderson told Reuters, adding that this was good news for others in the sector such as Infoblox Inc BLOX.N, Gigamon Inc GIMO.N and F5 Networks Inc (FFIV.O: Quote).

Revenue from Cisco's hardware business rose 7.8 percent to $9.08 billion in the company's second quarter ended Jan. 24.

Revenue from services, which includes the company's software and cloud offerings, rose 4.6 percent to $2.86 billion.

Subscriptions generate more predictable recurring revenue than hardware sales. The services business is also less likely to suffer from sudden shifts in demand.

"They may have the worst in the rear view right now," said Wedbush Securities analyst Scott Thompson.   Continued...

A Cisco logo is seen at its customer briefing centre in Beijing, November 14, 2013. REUTERS/Kim Kyung-Hoon