The improving picture at Cisco continued in its Q1 results, as released last night. Headline revenue was $11.26bn, up 5% year-on-year. Gross margin for the quarter was 62% and operating margin was 26.1%, down 2% compared to Q1 of FY11, but up 1% sequentially thanks to operating costs that were $120m lower than in Q1. Year-on-year growth in product orders was encouraging at 13%. Even in EMEA, where revenue growth was just 2%, product orders grew by 13%. Cisco’s Nasdaq-listed shares are currently up 6% in trading today.
The growth rates by business activity highlight Cisco’s challenges in the current market, but also its opportunities. The majority of the company’s business (52% in the quarter) is still in the growth-free switching and routing areas. But the company has access to growth opportunities in other areas of its business, not least service provider video (up 13% in the quarter) and collaboration (up 12%). And best of all was its small (for Cisco, at a current run rate of around $1bn turnover per year!) but fast-growing data centre category. Here the move to virtualisation and cloud, plus the sheer expansion in data centre capacity and usage, pushed revenues up 107% in the quarter.
It’s too early yet to say whether Cisco’s change of strategic direction during 2011 is turning around the company’s performance, but the numbers are certainly encouraging. It is doing the right thing by refocusing its structure and its offerings, as signalled back in May, on 5 key areas, namely “core” (including routing, switching, and services); collaboration; data centre virtualisation and cloud; video; and architectures for business transformation. In other words, Cisco is at long last refocusing its attention on the opportunities in the areas - i.e. enterprise and service provider infrastructure - which made it the $40bn-revenue behemoth that it is.