Tomahawk, WI 05/15/2014 (Basicsmedia) – As Cisco Systems, Inc. (NASDAQ:CSCO) announces its 3Q2014 results today, the expectations are low including 6 to 8% revenue declines compared to 3Q2013. Emerging market weaknesses and other factors had led to revenue declines in the previous quarter as well.

Multiple Headwinds

The Snowden revelations regarding the NSA have also particularly damaged the company’s performance and prospects in China. The other long-term challenge for Cisco comes from software-defined networking (SDN) which will eat into Cisco’s high profit margins. SDN is cheap and might lead to a commoditization of networking hardware reducing the profitability of brand-name companies — something which has already happened in the PC business causing much damage to the likes of International Business Machines Corp. (NYSE:IBM), Hewlett-Packard Company (NYSE:HPQ) and Dell. All of these companies are also competing with Cisco in the networking space.

Unlike Cisco, its (smaller) rival Juniper Networks, Inc. (NYSE:JNPR) reported a 10% rise in revenue for 1Q2014.

Investing in Innovations

Its VC arm, Cisco Investments has allocated an additional $150 million for investment in startups in the Internet of Things space. Cisco already boasts of a $2 billion portfolio of investments in startups. These investments are in areas such as big data and analytics, storage and other technologies.

Silver Linings

Cisco Systems, Inc. (NASDAQ:CSCO) still has some strong points in its favor including its strong position in the enterprise networking market — 70 to 75% in enterprise routers and switches. Cisco is also looking to enter the SDN business with its own products such as Application Centric Infrastructure (ACI) SDN.

Cisco’s end-to-end solutions to enterprise clients particularly suit the needs of large MNCs it’s not easy to dislodge Cisco from that market since no other company has the range of products that Cisco does. Cisco is a one-stop shop for routers, switches, network OS, servers, IP phones, and videoconferencing systems, etc. Cisco has said that it intends to invest over $1 billion over the next two years to build a global Intercloud in collaboration with partners such as Telstra, Allstream, Canopy, etc.

Cisco Systems, Inc. (NASDAQ:CSCO)’s plans in the data center space include the creation of an alliance of large technology and telecommunications companies. Cisco wants to offer an alternative to Google Inc (NASDAQ:GOOG) and, Inc. (NASDAQ:AMZN) running their proprietary cloud service offerings known as Google Compute Engine and Amazon Web Services (AWS) respectively. Cisco has opted for the OpenStack open-source cloud-computing platform managed by the OpenStack Foundation that includes more than 200 companies including Cisco, IBM, AT&T Inc. (NYSE:T), and HP.

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