Why Cisco's Stock Increased by 10% in February (Part 20 of 20)

(Continued from Part 19)

UCS is driving growth at Cisco

Cisco (CSCO) announced its fiscal 2Q15 earnings on February 11. Cisco managed to beat analysts’ estimates on both the revenue and earnings per share fronts. There were a number of drivers for Cisco’s better-than-expected earnings. The company’s data center revenues grew by a year-over-year rate of 40% in the last quarter on the back of its Unified Computing System (or UCS). UCS is a system that converges networking, storage, security, and applications into one infrastructure.

UCS has also helped Cisco gain share in the server systems market. According to a report from IDC and as the chart below shows, Cisco managed to increase its share in the worldwide server systems market from 5% in calendar 3Q13 to 6% in 3Q14. Although HP (HPQ) and IBM (IBM) are the leading players in this market, their market shares declined. Oracle (ORCL) is another smaller player whose market share remained constant.

Cisco’s other business is also showing better-than-expected results

In addition to its data center business, Cisco’s wireless, switching, collaboration, security, and routing businesses all showed positive revenue growth. Cisco’s wireless business recorded revenue growth of 18%, which the company credited to Meraki. Meraki’s technology provides a means to control Wi-Fi networks through the cloud.

Speaking of the switching business, it remains Cisco’s most valuable business. The switching business achieved revenue growth of 11% and now contributes 40% to Cisco’s overall revenues. The main reason for this growth was the continued momentum of its Nexus ACI portfolio of switches.

The revenue growth from Cisco’s collaboration business was negative in the prior quarters, but it turned positive in the last quarter. Cisco credited this positive growth to the fast growth in telepresence or the video conferencing business.

Cisco also achieved healthy revenue growth from its security business on the back of the Sourcefire acquisition that it completed in 2013. Sourcefire’s intrusion detection products have helped Cisco gain business from the US government and enterprises looking to protect their networks.

Cisco’s routing business showed slow growth, but it was better than the negative growth that this business underwent in the prior quarters. The positive growth came on the back of its new router products, such as CRS-X and NCS.

Geographically, Cisco earns about half of its revenues from the US alone. Cisco managed to grow its revenues from the Americas by 10%. the robust US economy (SPY)(IVV) is one of the reasons for Cisco’s better showing in the US.