Cisco (CSCO) Addresses Industry Megatrends to Drive Growth

Cisco CSCO recently unveiled solutions to address certain industry megatrends, which will help cloud operators save energy and drive operational efficiency.

The world is going through its fourth industrial revolution, which is data-driven and a primary reason behind the rise of the Internet of Things (IoT). Various enterprises are investing heavily to rapidly digitize their organizations, reflecting the shift to IoT, Artificial Intelligence (AI) and Machine Learning (ML).

The rapid shift to these high-bandwidth and low latency applications like AI or ML, virtual and augmented reality reflects the need for 800G capacity and to connect multiple data center buildings together at high data rates.

Per Gartner, worldwide spending for cloud solutions is expected to reach $500 billion in 2022. This will create a new revenue source in the industry. Cisco is investing heavily to build its portfolio to support cloud data centers, which is expected to generate positive ROI and win market share against stiff competition.

Cisco has launched its new 800G platforms, Nexus 9232E and Cisco 8111, powered by Silicon One G100 to support high-performance connectivity demands, such as bandwidth-intensive AI/ML clusters and for the seamless performance of multi-level data center fabrics operating both in public and private cloud.

Cisco has also launched two new high-density industry-standard QSFP-DD800 form factor optical transceivers, which double port bandwidth and connect single-mode fiber links in the data center up to 2km.

Cisco Systems, Inc. Price and Consensus

Cisco Systems, Inc. Price and Consensus

Cisco Systems, Inc. price-consensus-chart | Cisco Systems, Inc. Quote

Cisco Launches Solutions to Drive Top Line

Cisco’s shares have been negatively impacted by global supply chain challenges. The supply chain constraints resulted in a severe shortage of certain components that hurt its ability to ship products to customers, hindering the top-line growth in the last reported quarter.

Cisco’s top-line growth was also affected by the Russia-Ukraine war, which has put various business enterprises in the crosshairs of geopolitical tension. Rising inflation is also a major headwind.

Due to these reasons, Cisco has guided revenue growth for the first quarter of 2023 in the low single digits of 2% to 4% compared with the year-ago quarter. The Zacks Consensus Estimate for revenues is pegged at $13.33 billion, suggesting growth of 3.33% from the year-ago period.

Further, as it ventures into new markets, Cisco is experiencing stiff competition from the likes of Wipro Limited WIT in cloud securities solutions and Broadcom AVGO in the networking space.

These reasons have contributed to the fall in Cisco’s share price. The stock has tumbled 34.1% in the year-to-date period compared with the Zacks Computer - Networking industry’s decline of 33.7%.

Wipro recently expanded its collaboration with VMware to help customers move data to the cloud at a reduced cost and operate in a multi-cloud infrastructure.

With the recent collaboration, Wipro FullStride cloud services will be able to provide its security services to customers for no additional cost and protect data while operating in a multi-cloud architecture. This is expected to help Wipro garner more customers amid rising competition.

Broadcom is also building strategic partnerships with companies like Tencent to accelerate the adoption of high bandwidth co-packaged optics (CPO) network switches for supporting cloud infrastructure.

Under this partnership, Broadcom will provide the 25.6-Tbps Humboldt CPO switch device that features its StrataXGS Tomahawk 4 switch chip, directly co-packaged with the four 3.2-Tbps Silicon Photonics Chiplets In Package (SCIP) optical engines.

However, to deal with rising competition in cloud solutions and networking space, Cisco recently expanded its business partnership with General Dynamics Information Technology (GDIT), a business unit of General Dynamics GD.

GD is helping Cisco to maintain its position as the largest player in the networking space. The two companies have collaborated to deliver Cisco Private 5G services to various government enterprises for IoT and edge use cases.

To diversify its product offerings and beat the competition, CSCO recently launched products and solutions in its Routed Optical Networking solution business to aid customers in saving up to 45% in power and 70% in real estate space for equipment and reducing carbon emissions.

The company, with its recent product launches, is trying to address what the global economy needs right now, which will drive the stock in the long run.

Cisco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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