With Storage Growing, Cisco Aims for China

Cisco, buoyed by strong first-quarter performance from its storage business, is preparing an assault on the burgeoning Chinese market.

In its first-quarter fiscal 2008 results last night, Cisco reported revenues of $9.6 billion, up 16.7 percent on the same quarter last year, just beating analyst estimates of $9.54 billion.

Cisco's Advanced Technologies group, which includes its storage offerings, accounted for $2.4 billion of first-quarter revenues, a hike of 27 percent on the same period last year.

On a GAAP basis, Cisco reported earnings per share of 35 cents on net income of $2.2 billion, up from 26 cents and $1.6 billion in the first quarter of last year.

The vendor's non-GAAP earnings were 40 cents on net income of $2.5 billion, compared to 31 cents and $1.9 billion in the year-ago quarter. Analysts had estimated earnings of 36 cents."There was strong performance in unified communications, video, and storage," said Cisco CEO John Chambers, during a conference call last night. Although he did not break out figures, the exec explained that storage revenues grew 20 percent year-over-year.

Fresh from a trip to the Far East last week, Chambers highlighted China and India as major areas of focus for Cisco.

Demand for Cisco's products grew 35 percent in emerging markets, compared to 20 percent growth in Europe and 13 percent in the U.S., he noted.

"We have made the decision to expand dramatically in China over the next five years," he said, explaining that Cisco is now expanding its operations in the central and western parts of the country, as well as looking for new partner opportunities.

Last week, for example, Cisco revealed plans to double its investment in China to $16 billion over the next five years.This initiative includes a memorandum of understanding with the China Development Bank to examine joint investment opportunities and the establishment of SMB research teams within China.

Cisco already has a stake in Chinese Internet company Alibaba, which raised $1.5 billion in an IPO earlier this week, and Chambers confirmed that more deals are likely.

"There's a lot of interest in partnering with companies," he said. "The Chinese software industry is active and thriving."

The networking giant is also planning new deals with schools in the world's most populous nation, as well as targeting the organizations that control the bulk of China's nascent technology infrastructure. "We're looking across the board at all the government agencies," added Chambers.

In stark contrast, the exec painted a somewhat less rosy picture of the U.S., where strong demand from American service providers and consumers was offset by enterprise "lumpiness.""We clearly see the same things that each of you see in terms of opportunities and concerns in the U.S. market," said the CEO, alluding to other vendors' gripes about a U.S. spending slowdown.

The exec, who faced a barrage of questions from analysts about stateside spending patterns, singled out financial services, automotive, and retail as the worst-affected sectors. "We think that U.S. enterprises have really squeezed their IT departments," he added.

Even though Chambers expects U.S. enterprise spending to eventually return to its previous levels, the CEO was unwilling to predict when this might happen.

True to form, Chambers could not resist returning to one of his pet topics during last night's call, grabbing yet another opportunity to shout about Web 2.0 technologies such as podcasts, wikis, and Web conferencing.

"We believe that we're entering the next phase of the Internet," he said. "This is the top of the first inning of a nine-inning game."Have a comment on this story? Please click "Discuss" below. If you'd like to contact Byte and Switch's editors directly, send us a message.