Editor’s note: Scott Dennehy is an Engagement Manager/Senior Analyst at Technology Business Research in Hampton, N.H. Dennehy sees benefits in Cisco’s (Nasdaq: CSCO) announced layoffs of some 4,000 people. The cuts were announced last week in Cisco’s latest earnings update.
Strong performances from major geographies and product segments paved the way for Cisco’s revenue growth in 2Q13.
Cisco’s consistent execution on its strategic objectives enabled the company to again deliver highly profitable growth in 2Q13, with top-line revenue increasing 6.2% and operating margin growing 240 basis points year-to-year to 22.7%. The company’s revenue growth was driven primarily by the Americas region, which grew by double digits year-to-year (13.7%) for the first time in almost three years, fueled by growth in the company’s enterprise, commercial and public sector segments.
Cisco’s switching segment’s revenue grew 5.5% year-to-year, its strongest growth since 4Q11, indicating the company has been successfully thwarting attempts by competitors to lure Cisco’s channel partners away with aggressive pricing and incentive programs.
While the global customer spending environment will remain conservative for the short term, TBR believes Cisco will continue to outpace its main rivals in revenue growth due to its differentiated approach of selling end-to-end product architectures as well as its industry-leading channel partner base.
A leaner organizational structure and investments in high-growth segments also will fuel Cisco’s long term revenue growth.
Cisco will increase its speed and agility, aligning its resources to capture growth opportunities in emerging segments such as cloud, mobility, security and SDN to ensure the company can respond quickly to changes in the marketplace. This process will result in occasional headcount reduction, such as the 5% reduction (4,000 employees) the company announced during its 2Q13 earnings call. TBR believes the majority of these layoffs will be at the middle and upper management layers, enabling Cisco to make decisions quicker and more effectively.
Cisco will leverage acquisitions to rapidly advance its position in key markets, similar to the company’s July purchase of security vendor SourceFire for $2.7 billion. While Cisco’s security business continued its struggles in 2Q13 (1.1% revenue decline), TBR believes SourceFire will enable Cisco to achieve revenue growth in the segment in 2H13 by helping the company compete more effectively with smaller and innovative pure-play security vendors such as Check Point, Fortinet and Palo Alto Networks.
(C) TBR
