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Catalyst 9000 the, erm, catalyst for surging Cisco software sales

Switchzilla's switches outstripped by code

Are you sick of hearing about Cisco's transformation yet? Bad news, then: with its Q3 results in, the company's waving its “we're a software company now” flag so high we may have to drop the “Switchzilla” nickname.

It helps if the pivot-to-software rides on a highly popular hardware platform: CEO Chuck Robbins told today's financial conference call the Catalyst 9000 now over 5,800 customers, up from 3,100 last quarter. The device comes with a software subscription, and has high “attach rates” for more advanced software subs (to access, for example, the C9000's automation capabilities).

Back in February, Robbins told the last earnings call the switch and its subscription was priced to attract customers, by starting off at slightly lower than the perpetual license model customers were accustomed to.

“What we wanted to put in the advanced subscription was fundamentally new technology they couldn't get from us before”, he said at the time.

He told today's call that strategy is working: customers had bought into that model at a consistent rate over the last four quarters.

Robbins also said Cisco saw growing adoption of the C9000 in the enterprise space, reflecting an expected lag in enterprise take-up of the product among those customers.

The numbers

Even relatively flat sales still left switches and routers at more than 57 per cent of the company's business – but applications drove growth.

While the switch-and-router business turned in two per cent growth over Q3 2017 to nearly $7.2bn, applications shot up 19 per cent to top $1.3bn, security grew 11 per cent to $583mn, and services were up three per cent to $3.2bn. The only shrinking business segment was “other products”, down 6 per cent to $249mn.

At US$12.5bn, revenue was up four per cent year-on-year over Q3 2017, recurring revenue – software subscriptions and services contracts – is now 32 per cent of Cisco's revenue, and GAAP net income was up seven per cent year-on-year to $2.7 billion.

All geographical segments returned to growth, with the Americas putting on two per cent to $7.2bn, EMEA up nine per cent to $3.3bn, and the Asia-Pac up seven per cent to just over $2bn.

Service providers remain difficult, with orders shrinking by four per cent year-on-year from Q3 2017, but that was more than offset by 11 per cent growth in the enterprise sector, seven per cent in the commercial sector, and public sector orders chipping in two per cent growth.

The company's also modestly optimistic about the next quarter, predicting between four and six per cent revenue growth.

The full financial announcement is here. ®

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