Editor’s note: Cassandra Mooshian is an analyst with Technology Business Research. Cisco operates its second largest corporate campus in Research Triangle Park, N.C. with some 5,000 employees.
HAMPTON, N.H. – Cisco’s earnings announcement earlier this month shows a continued focus on its higher-margin businesses as the company takes a more solutions-oriented approach drove services revenue and margin growth
Cisco (Nasdaq: CSCO) reported quarterly revenue of $12.2 billion, up 5.4% from the year-ago quarter in calendar 1Q13, Cisco’s fiscal 3Q13. Cisco Services’ revenue increased 7.1% over the same compare to $2.7 billion, outpacing year-to-year product growth of 5% as the company continues to transition toward a solutions approach.
Corporate operating margin of 24.1% improved by 40 basis points from 1Q12 while TBR estimates Cisco Services’ operating margin increased by 160 basis points to 41.3% in 1Q13, which we believe is a result of the recent focus on driving revenue from and efficiencies in its higher-margin services and software segments.
We anticipate corporate and services margins to fluctuate in coming quarters as the firm takes on integration costs associated with recent acquisitions, four of which have either been closed or announced this quarter to close in the next year.
Cisco’s internal success story with BYOD [bring your own device] and a focus on shifting to an entirely mobile workforce provides a compelling case study for Cisco to sell its BYOD solutions.
Mobile adoption is a key factor influencing IT services evolution and virtually all IT professional services vendors offer flavors of mobility solutions. Cisco backs up its solutions with a persuasive internal accomplishment. Since 2009 Cisco has been able to lower its cost per staff member by 25% as a result of an internal BYOD program. As of early March 2013, Cisco had 43,821 employees on 59,141 employee-owned devices. Cisco’s internal BYOD program has requirements around the types of devices people can use and the usage protocols to ensure security.
Through the process of implementing and carrying out the program, Cisco has been able to work out any BYOD implementation and adoption challenges in its organization, lowered costs, allowed acquired companies to be quickly integrated into the Cisco IT network and has attained the ability to attract and retain tech-savvy employees that desire to choose their own devices.
TBR believes Cisco will leverage its BYOD policy to have employees shift to a 100% mobile workforce eventually, which it has already done in Singapore, to increase productivity, drive innovation and attract younger talent that demand a connected work environment. We further believe that BYOD policies help keep margins stable, as the company increases its acquisition activities, as it helps to counter the integration costs by providing a solution to move acquired employees to the network smoothly.
Cisco will utilize best practices that it has acquired over the past four years through developing and running a BYOD program to go to market with its own BYOD solutions and present a strong case around the benefits of BYOD for organizations. We believe there will be many BYOD cross- and upselling opportunities for Cisco Services as clients increasingly embrace mobility. Cisco Services will have a competitive advantage in offering its BYOD services due to its extensive knowledge designing and implementing BYOD and networking solutions.
Cisco also continues its buying spree of companies that complement and expand its cloud, mobility and security portfolios and capabilities.
Cisco announced the acquisitions of Ubiquisys, Cognitive Security, SolveDirect and Intucell to increase its presence in the fast growing fields of cloud computing and mobility as clients increasingly shift to business models that revolve around virtual, secure and connected environments. The SolveDirect acquisition will allow Cisco to better deliver smart and connected IT services to its clients due to the acquired company’s cloud services management integration software and services aimed to cut costs for customers through the automation of sharing of data, processes and workflows. T
BR believes Cisco Services will leverage SolveDirect’s offerings to build a more comprehensive portfolio of cloud services and solutions. We further believe the Intucell and Ubiquisys acquisitions allow Cisco to build out its mobility portfolio and enable it to create an end-to-end mobility solution that will ultimately drive revenue and margins. Furthermore, Cisco acquired network security firm Cognitive Security in February to offer the value-added and mission-critical layer of security solutions to its growing cloud and mobility portfolios.
TBR believes Cisco will continue to acquire companies in 2013 that provide complementary offerings to its portfolio, particularly around cloud and mobility.