Had I not been mired in preparing for our Mobilize 08 conference, which kicks off tomorrow, I would surely have attended Cisco’s analyst day, if only to find out how the company with some $40 billion in annual sales plans to keep growing in the face of a tighter global economy. What would have become immediately clear to me is that the company is betting on three buzzwords — video, collaboration and virtualization — to spur annual growth of between 12 and 17 percent over the next few years.
We have written extensively about Cisco’s various moves into collaboration, in particular its pesky fight with Google and Microsoft, as well as its commitment to data centers. While it’s still too early to tell how it will all shake out, our industry sources say that the Cisco sales machines has started to march in this direction.
Not that the company has a choice. Cisco’s core markets of switching and routing (54 percent) are maturing and may grow just 8-9 percent over time, so the company needs to find new growth opportunities — fast. Success, however, is far from guaranteed, especially in the light of competition from certain players that have traditionally been seen as friends.
Numerous analysts that were at Cisco’s analyst day emailed me their research notes. Here are some highlights from RBC Capital Markets, UBS and Lazard Capital Markets:
- Video, collaboration and virtualization were key areas of focus and may collectively represent $62 billion in additional addressable markets.
- Cisco’s core markets of switching and routing (54 percent of their revenue) are hitting middle age and may grow just 8-9 percent over time.
- Cisco expects 8 percent year-over-year growth.
- U.S. financial sector only accounts for 3-4 percent of Cisco’s total sales, so its woes won’t have much of an impact, the company says.
- UBS analysts agree with my prognosis that, along with slugging it out with Microsoft, Cisco is going to butt heads with server makers like HP and IBM.
- Lazard Capital Markets said what we reported back in March, that sooner or later, Cisco is going to make blade servers. As analyst Ryan Hutchinson wrote:
“Are blade servers the next move? Our industry contacts suggest Cisco will enter the blade server market over the next several months. While we have yet to collect all the details, we believe this is an aggressive move toward increasing its control over the next-generation data center.”
What do analysts think about Cisco?
- Mark Sue, RBC Capital Markets: “[D]espite the muted environment, Cisco may be executing better than its peers…we view Cisco as a strong relative defensive name.”
- Ryan Hutchinson, Lazard Capital Markets: “Chambers’ tone continues to be bullish despite the continued macro situation, expressing confidence in Cisco’s ability to grow and take share during market transitions.”
- UBS analysts: “We believe given the slowdown in organic growth & an increasing chance of acquisitions, Cisco’s multiple will likely remain in the mid to low end of its 15-20x historical PE range.”
Photo courtesy of Cisco Systems.