EUR 850.00 For Business Accounts Only

Morningstar | Cisco Continues to Shift to Software and Services in a Multi-Cloud World

Cisco remains a networking equipment behemoth and continues to execute on its strategic focus of selling software and services to supplement its hardware products. Software and services were 43% of fiscal 2017 revenue, and the company's goal is to have those revenue streams make up at least half of fiscal 2020 sales. We assess Cisco's plan as the correct direction for sustainable growth and believe the firm will meet or exceed its software and services revenue goal. Through its organic developments and acquisitions, Cisco's portfolio remains appealing to customers migrating toward software and cloud-based solutions.The company is the dominant supplier of switches, routers, firewalls, and complementary networking products. Cisco's products are mission critical for network performance, stability, and security. As networking teams are adopting cloud solutions, Cisco is proliferating software, analytics, wireless, and security offerings to satisfy nascent trends. With its extensive product portfolio, we see Cisco as the only one-stop-shop networking vendor. We believe Cisco's vast existing installation base and budding product offerings, like network monitoring and analytics, keep Cisco as an industry leader.Despite Cisco's commanding position in switches and routers, IT professionals are increasingly shifting computer workloads to the cloud, in turn buying less data center hardware from firms like Cisco. Cisco is rebounding with its most successful switching product launch in history, the Catalyst 9000. The Cat 9k has a subscription-only sales model, sold in three-, five-, or seven-year increments. Alongside the switch, software packages containing different levels of analytics and security must be purchased. We are encouraged that Cisco is rolling this sales model to more product lines and that most customers are signing up for the most expensive tier that includes advanced analytics and security. We also see positive momentum being gained by Cisco's strategic adjustment to cooperatively develop products with key customers and its willingness to disaggregate software from hardware as more large-scale customers move toward software-only consumption.