Networking market leader Cisco Systems said Wednesday that growth in sales to businesses in the first quarter of fiscal 2006 was higher than any of the last five quarters. The company also saw rapid growth in a few product markets, including storage networking and enterprise IP communications.
Still, the company is cautious about the future. "It's too early to say it's turned around," says chief development officer Charles Giancarlo. And despite traditionally strong second quarters for the company, Cisco forecasted slower overall growth over the next three months.
The company posted quarterly revenues of $6.5 billion, a 9.7% increase over the same period a year ago. Profits were down slightly at $1.3 billion due to new expensing that includes stock options, but would have been up had they not been included.
Although the company predicts slower growth in the second quarter, Cisco will continue to move into new markets with new products and strategies, CEO John Chambers said in a Wednesday conference call with investors. "The best time to capture a market transition is well before the transition has become apparent to the mainstream," he said.
The company will push hard into two new unspecified markets by the end of the year, both of which Cisco believes could be $1 billion markets within five years. Meanwhile, Giancarlo says there's such a high interest in Cisco's new radio interoperability system and application-oriented networking products, now in testing phases, that the company couldn't accommodate all of the customers that wanted to try out the products.
Some product direction might be gleaned from Chambers' repeated references to integrated services. "We are seeing an increased trend toward integrated networking solutions," he says. "By coupling routing and switching with our advanced technologies such as security, enterprise IP communications, and wireless, Cisco's architectural approach is allowing customers to more effectively scale their IP operations."
But there are challenges ahead. Cisco sees a horizon filled with low-cost Asian competitors, but Giancarlo doesn't expect them to put a significant dent in the company's enterprise revenues in the United States. He says American companies' interest in long-term savings and integrated products will keep them with Cisco. "It's really a value-oriented market," Giancarlo says. "They buy capable, high-value product."
Chambers sees a boom in India, where revenue has grown more than 50% in each of the last two years and is expected to grow 40% year over year for the next two. At that rate, Chambers said, "It would not surprise me to see India challenge China from a business perspective going out three to four years." Cisco recently announced that it will soon spend more than $1 billion on business infrastructure on the subcontinent.