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What Lies Next for Cisco Systems, Inc. (CSCO)?

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Cisco Systems, Inc. (NASDAQ:CSCO) shot up after its quarterly earnings announcement to a new 52 week high. The company provided a strong outlook, further boosting its stock price. However, it still remains to be seen how the stock will fare once the exuberance over quarterly results cools down. I am going to have a look at future prospects for the stock along with the challenges that lie ahead for the company.

Cisco Systems, Inc. (NASDAQ:CSCO)

Triggering factor

The main triggering point for Cisco Systems, Inc. (NASDAQ:CSCO) came last week when the company announced its third quarter results. Its Non-GAAP net income for the quarter stood at $2.7 billion or $0.51 per share, handily beating the consensus estimate of $0.49 in EPS. It also grew its quarterly revenue by 5.4% to $12.22 billion. Again, the company outpaced the consensus estimate of $12.19 billion in revenue. Cisco is also looking to repeat the performance for the fourth quarter. The company expects to report its fourth quarter EPS in the range of $0.50 to $0.52 per share while analysts have pegged their expectations at $0.51 per share.

Future strategy- acquisitions

Cisco Systems, Inc. (NASDAQ:CSCO) stock has underperformed for quite some time. It touched its life-time high of nearly $80 in March, 2000, however, in recent times it peaked at $30 in 2004, $33.13 in 2007 and $27.47 in 2010. The company is now revamping itself to meet new challenges. In the recent past, it undertook a series of attractive acquisitions. In April, Cisco acquired Ubiquisys for nearly $310 million. With this acquisition, the company boosted its software-based service portfolio. The technologies acquired under this acquisition will also help Cisco in becoming a more attractive option for mobile carriers. Ubiquisys deal further highlighted Cisco’s commitment towards mobile market.

Cisco Systems, Inc. (NASDAQ:CSCO) had earlier bought Israeli mobile company Intucell in January this year. Like Ubiquisys, Intucell will also help Cisco in adding network intelligence to its mobile portfolio. Cisco is expected to continue on its growth trajectory through acquisitions. Apart from Ubiquisys and Intucell, the company has already splurged on buying SolveDirect and Cognitive Security this year. Overall, Cisco is boosting its core strength in mobile services through acquisitions, which are likely to be accretive in the near future.

Capturing the SDN market

Cisco Systems, Inc. (NASDAQ:CSCO) is also planning to increase its product depth. The company sold its Linksys business to Belkin. The resulting cost reduction will help Cisco to focus on its core competencies. Another emerging area of interest for Cisco is Software Defined Networking or SDN, where its peer Hewlett-Packard Company (NYSE:HPQ) has already made good inroads. Hewlett-Packard recently introduced its new FlexFabric Virtual Switch 5900v software with FlexFabric 5900 physical switch. HP stock is currently doing well. Under the stewardship of Meg Whitman, the company has launched a bevy of SDN products. It also has the advantage of being the first comer in the market.

Similarly, VMware, Inc. (NYSE:VMW) is moving ahead with its cloud-centric SDN solutions. Software Defined Networking decouples networking control from its physical infrastructures. Cisco Systems, Inc. (NASDAQ:CSCO) recently introduced its Open Network Controller, which will form the basis of its SDN strategy. HP is also currently working on developing its own controller.

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