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Cisco CEO On Hyperconverged, Security, Recurring Revenue

Cisco Systems (CSCO) is pleased with the momentum across its businesses and in the company’s strategic shift towards recurring software and subscription-based revenue, according to CEO Chuck Robbins. But Robbins also concedes that there’s further room for improvement — particularly when it comes to hyperconverged infrastructure (HCI).

Robbins shared those insights and more during Cisco’s earnings call this evening. On the upside, Cisco’s security revenue rose 14 percent in Q2 2017. Business was particularly strong for Cisco’s Advanced Malware Protection (APM) deployments. The company added more than 6,000 new APM customers during the quarter, and associated revenue rose 65 percent in the quarter. Cisco’s APM installed base is now 29,000 customers.

Hyperconverged Infrastructure (HCI) Challenges

During a Q&A session, a Wall Street analyst asked if Cisco is making progress on hyperconverged infrastructure (HCI). The analyst’s view: Cisco’s HCI efforts don’t seem to be moving the dial yet.

Robbins conceded that he’d like to see faster HCI progress. His response to the question:

“So first of all, I think in our next-gen data center switching portfolio, you can see continued performance and continued good adoption of those solutions from our customer base. I think on the hyperconverged, we certainly would like to see it moving more quickly. We have recently had a release of software that has helped with some of the capabilities, and I think that there are a couple more coming that should continue to give us more capabilities in that space. And I think that we’re also looking, as you would expect, at our broad strategy in the data center and where we need to go to ensure that we best position ourselves going forward. So that work is going on as well right now.”

Cisco’s HCI strategy is particularly important — especially as HP Enterprise acquires SimpliVity, and Nutanix partners up with Lenovo and Juniper Networks.

Cisco Recurring Revenues

Meanwhile, Cisco also is striving to boost recurring revenues.

There has been progress. Roughly 31 percent of the company’s revenues are now recurring, up from 26 percent when Robbins first became CEO in mid-2015. But those figures include Cisco’s services revenues. Strip out that information, and only 10 percent of Cisco’s product revenues are recurring.

But here again there are signs of progress. Robbins points to Cisco ONE — the company’s software strategy — as a means that will further lift recurring revenues. Also, Cisco’s AppDynamics acquisition — focused on application performance monitoring (APM), will further bolster recurring revenues.

Roughly 75 percent of AppDynamics revenues are recurring. But even there, Cisco and AppDynamics will face intense APM competition from Dynatrace, New Relic and perhaps even Datadog.

Cisco: The Bottom Line

For the quarter, Cisco’s total revenue was $11.6 billion, down 2 percent. Product revenue declined 4 percent and service revenue rose 5 percent. On a non-GAAP basis, net income was $2.9 billion, down 2 percent.

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