Cisco Systems Inc. (CSCO:US) Chief Executive Officer John Chambers affirmed the company’s long-term revenue growth target of 5 percent to 7 percent as he expands software and services to lessen reliance on routers and switches.
Cisco, the world’s largest maker of computer networking equipment, is looking for new markets amid intensifying competition from rivals such as Juniper Networks Inc. (JNPR:US), Hewlett- Packard Co. (HPQ:US) and Arista Networks Inc. A central part of that effort has been the acquisition (CSCO:US) of software and services companies with strong recurring sales and profit margins.
Services will become a bigger part of Cisco’s revenue (CSCO:US), reaching 25 percent of sales, Chambers said today at a financial analysts’ conference in New York. That business accounted (CSCO:US) for 21 percent of Cisco’s $46.1 billion in revenue in the last fiscal year. Cisco still intends to double its software revenue as well, Chambers said, reaffirming an earlier target.
“We’ve gone too long without any major M&A,” Chambers said. “We got too slow. You’re going to see us be quicker.”
Citrix Systems Inc. (CTXS:US), which announced a “significant expansion” of its partnership with Cisco in October, rose as much as 4.1 percent, the biggest intraday rise in a month, after Chambers spoke.
Citrix, which makes virtualization software, is a possible acquisition target for Cisco, as are data-storage specialist NetApp Inc. (NTAP:US) and information-technology management software maker ServiceNow Inc. (NOW:US), Brian Marshall, an analyst with ISI Group, wrote in an e-mail.
Cisco announced on Nov. 18 it agreed to pay $1.2 billion for Meraki Inc., which makes tools to manage Wi-Fi networks and security. In July, Cisco acquired NDS Group Ltd., which makes software for cable set-top boxes, for about $5 billion.
Both companies give Cisco technologies for making networks more intelligent, whether they’re detecting fraud and protecting video content, or giving corporate technology managers an easier way to configure their systems.
Cisco’s expansion comes as the company is recovering from an earlier foray into consumer technologies that backfired. Market-share erosion and falling profit margins led to cuts. Chambers is pushing for faster decision-making, and has eliminated 7,800 jobs over the past year and a half, while closing businesses such as the Flip video-camera unit.
Analysts predict sales growth of about 6 percent in 2013, 2014 and 2015, according to estimates (CSCO:US) compiled by Bloomberg. Cisco cut its own long-term sales-growth target last year to 5 to 7 percent, from an earlier projection of 12 to 17 percent. The company said today it would stick with the revised target.
San Jose, California-based Cisco rose less than 1 percent to $19.34 at the close in New York. The stock is up 6.9 percent so far this year. Citrix shares fell 3.3 percent to $62.03.
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