Star student Cisco set to meet analysts

When Cisco meets analysts Wednesday at an annual conference about its business outlook, the dominant networking player will bring a good financial record and an even more impressive forecast.

Rapidly expanding beyond its traditional routing and switching businesses into voice, video, wireless, and other categories, the company now sees gold in collaboration using Web 2.0 technologies. Last month, when it reported results for its fourth quarter and 2007 fiscal year, Cisco upped its forecast for quarterly revenue growth, year over year, to between 12 percent and 17 percent on average. That prediction is likely to be a hot topic at the conference, taking place at Cisco’s San Jose, California, headquarters.

That’s impressive for a company that’s anything but a startup with a market capitalization of about $200 billion and annual revenue of nearly $35 billion. Even Microsoft’s quarterly revenue hasn’t consistently been growing that fast in recent years. The new forecast is a jump up from a previous standing estimate of 10 percent to 15 percent that was controversial when first made a few years ago.

Analysts credit smart moves and generally good execution in entering new technology areas as well as strength in its core markets for the company’s ongoing success. Real-time communications of all kinds, including voice, data, social networking, and a form of high-quality videoconferencing Cisco calls Telepresence, will drive continued growth, Chairman and CEO John Chambers said last month.

The company has aggressively acquired to capture new markets, buying video infrastructure vendor Scientific-Atlanta last year and online collaboration service WebEx earlier this year, in addition to many smaller players. But its followup is just as important, according to Brian Riggs of Current Analysis, who specializes in communications. Cisco doggedly builds on the products it acquires and modifies its lineup to meet customer demands as it did with its Smart Business Communications System for small businesses earlier this year, Riggs said.

Cisco also seems to have a smarter approach to developing markets than do other first-world tech companies, said Yankee Group analyst Zeus Kerravala. Starting at the top with heads of state and convincing governments of the value of Cisco’s technology, the company sells into poorer countries without eroding its profit margin, he said.

Threats still loom, however. Microsoft is getting ready to take on Cisco’s unified communications architecture with Office Communications Server 2007 despite the two companies’ pledge last month to work together. Hewlett-Packard’s well-priced ProCurve products are gaining in enterprise LANs, F5 Networks could threaten Cisco in data centers, and there’s a danger of Cisco’s infrastructure gear becoming a commodity unless the company keeps innovating, Kerravala said.

However, Chambers’s rhetoric and Cisco’s results also say something about the industry as a whole, he said. Sales of HP and Foundry Networks’s enterprise products are also growing in a cycle that Kerravala attributes to upgrading networks that were built in advance of Y2K.

“At first glance, you can say he’s being overly optimistic, but on the other hand, he’s rarely wrong,” Kerravala said.