On November 15th, Cisco systems reported a better-than-anticipated quarterly profit in Q1 2018, driven by an 8% growth in its security business, a relatively new addition to the American multinational technology conglomerate. The growth in security offset the ongoing decline in its core business of switches and routers. While the company saw an overall decline by 2% in comparison to its Q1 in 2017 and product revenue of $9.05 was down 3% year-on-year; services grew by 1% to $3.08 billion and net income was up 3% to $2.4 billion.
The growth in revenue may suggest that the firm has begun to round a corner as it changes its focus to security, recurring subscriptions and from hardware to software.
Tim Green, analyst with the Motley Fool, said, “Cisco has been shifting its business model toward subscriptions, especially in the faster-growing segments like security. That effort may be starting to bear fruit.”
Revenue from Cisco’s security business, which offers firewall protection and breach detection systems, rose to $585 million.
“With an expanding threat landscape, cybersecurity is the no. 1 priority for businesses worldwide,” said CEO Chuck Robbins on a conference call with investors. “As customers adopt and advance intent-based networking, our security architecture accompanied with a best-of-breed portfolio enables our customers to reduce time to detection as well as complexity and cost.”
Like other legacy technology companies, Cisco has been focusing on additional quickly growing areas as well as security, such as the Internet of Things (IoT) and cloud computing. Ciscos’s IoT business increased 6% to $1.2 billion. AppDynamics, the application monitoring firm which Cisco acquired in January 2017, drove most of this growth.
Robbins didn’t comment on how much the growth was driven by hyperscale customers, but he did say he imagines this segment will drive future growth. The newest data center in Alibaba’s Cloud uses Cisco technology, and both Cisco itself and Microsoft offer an integrated cloud product modeled on Cisco infrastructure, as does Google.
Cisco’s subscription businesses constituted 32% of total revenue in the first quarter, up 3 points year-to-year. The technology leader also reported deferred revenue of $18.6 billion, up 10% year-to-year.
Cisco forecast a revenue growth of 1-3% for its second quarter, which would end a year-to-year decline of eight quarters. The world’s largest network gear maker predicted an adjusted second-quarter profit of 58 cents to 60 cents per share, according to Thomson Reuters I/B/E/S. In after-hours trading, its shares rose more than 5% to $35.95.