Wireless, Security and Data Center
Wireless and Data Center are the strong points of Cisco right now but Security was disappointing. Yearly growth figures here:
Security growth has now crawled to around 1%, and listening to what Fortinet, Inc. (NASDAQ:FTNT), Palo Alto Networks Inc (NYSE:PANW) and Check Point Software Technologies Ltd. (NASDAQ:CHKP) are saying, Cisco is not coming back anytime soon. Fortinet and Palo Alto both cited a number of firewall wins over Cisco. Check Point is going through a platform refresh which may be slowing growth while its new products seem to be giving its customers the opportunity to trade down. My hunch is that Fortinet’s solutions (traditionally more focused at the SMB market) are starting to gain significant traction with larger enterprises. Indeed, Fortinet stated that the number of deals above $500k rose to 27 from 15 last year as discussed here.
Data Center is one of the bright spots for Cisco. Yes, the market is surging with companies like Equinix Inc (NASDAQ:EQIX) expanding revenues rapidly but Cisco also deserves credit for being aggressive and taking an overall architectural approach with its unified data center strategy. I previously argued that Equinix’s spending plans would be a decent proxy for the industry, and although Equinix kept its capital spending plans unchanged for 2013 at $550-650 million, there will surely be upside pressure on this if growth continues at the current 20% rate.
Wireless is another strong area with particular strength seen in Service Provider WiFi which managed to double revenues on a yearly basis. I note that telecoms testing and monitoring company Ixia (NASDAQ:XXIA) also beat estimates recently amidst strong growth numbers, and the increasing proliferation of wifi enabled devices is going to have a symbiotic effect on wifi network spending. Ixia will benefit as large corporations will need to monitor how their networks are performing, and Cisco will benefit from network rollouts.
The Bottom Line
The key takeaways here are that Cisco is still facing challenges from Government spending so investors should look out for that with other companies. Furthermore, some of its peripheral markets are being challenged and I would expect some acquisition activity here. The good news is that US enterprise spending was up 9% and it’s time for investors to start focusing on tech names with exposure here rather than relying on emerging markets or global Government spending.
As for Cisco it remains a value proposition. If you are willing to take a long term view and believe in the acquisition ability of its management than you can do a lot worse than buy the stock.
The article Tech’s Bellwether Signals a Mixed Spending Environment originally appeared on Fool.com and is written by Lee Samaha.
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