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Cisco to expand booming wireless activities

CEO Chambers says the firm will make small cells, as it sees 38% revenue growth from wireless products in its fiscal quarter


Published: 14 November, 2012

READ MORE: Financial | Cisco Systems | Infrastructure | LTE | Wi-Fi

Wireless networking products were one of the highlights of Cisco's fiscal first quarter results, with sales up 38% year-on-year, and the networking giant took the opportunity to talk about plans to expand that business, riding the emerging trend for small 3G/4G base stations.

Cisco's previous effort in cellular RAN, the acquisition of WiMAX vendor Navini, was a failure, but it is a major supplier of Wi-Fi gear to carriers; it is a strong player in the packet core; and has worked with femtocell specialist ip.access to supply AT&T's extensive MicroCell build-out. All this positions it for an enhanced role in cellcos' supply chains as they move towards denser networks of LTE small cells, and Cisco looks set to make its own kit here.

CEO John Chambers said the firm planned to make its own cellular small cells, building on its Wi-Fi platform and giving it a new route into major operator accounts. However, there are risks to this strategy, since Cisco will be pitching against major OEMs with which it often collaborates, such as Ericsson.

In response to an analyst question on the earnings call about the RAN business, Chambers said carrier Wi-Fi kit had brought in $100m in the fiscal year, but the quarterly figure had doubled year-on-year, convincing Cisco executives of the growth potential of this relatively small activity. As reported by IDG, he said: "We're going to move into small cell, and then we're going to combine small cell with [carrier] Wi-Fi, with 3G, with 4G, with our architectural plays." But he confirmed that Cisco had no plans to make larger base stations.

In its quarter to October, Cisco beat Wall Street forecasts with net income up 18% year-on-year to $2.1bn, including one-off charges of $500m. Without the charges, Cisco earned 48 cents per share, ahead of analyst estimates of 46 cents, while sales were up 5.5% to $11.9bn, also topping analysts' forecasts of $11.8bn. For the current Q2, Cisco expects sales to grow by 3.5% to 5.5% with earnings per share of 47-48 cents, in line with expectations.

The results vindicate Chambers' aggressive turnaround program which was initiated after a rare brace of poor quarters last year and has involved cost cutting, the loss of 7,800 jobs, changes in pricing strategy to chase market share, and exit from a range of non-core businesses such as the Flip camcorder. This refocused attention on the heartland switch and router business, but sales here still fell by 2% on last year, despite the exponential growth in internet traffic - an increasingly competitive environment led Cisco to reduce its normally premium prices, while some carriers have deferred or staggered investment because of the economic crisis.

However, there was significant growth in other areas including wireless, but also online video services (up 30%) and data center systems, up 61%. Video is now Cisco's third business, with more than $1bn in sales.

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