Cisco collaboration revenue takes hit to start 2020
Revenue for the group within Cisco that includes communications, collaboration and contact center products was down 8% in the most recent quarter, compared to the same period last year. It's the first quarterly year-over-year decline for the segment since 2017.
The poor quarterly performance of Cisco's collaboration division comes as the vendor faces increasing competition from Zoom and Microsoft Teams. Cloud calling providers like RingCentral have also been successfully targeting the thousands of businesses using Cisco's on-premises telephony equipment.
"Obviously, there's some good competition in this space, which frankly should just keep making us better," CEO Chuck Robbins told investors on a conference call Wednesday. "But the team is doing, I think, a really good job."
The so-called applications group brought in $1.35 billion during the three months ended Jan. 25, down from $1.5 billion in the previous quarter and $1.47 billion one year ago. A small percentage of the group's revenue is attributable to IoT software and AppDynamics; revenues for the latter grew during the quarter.
A decrease in unified communications receipts drove the group's overall decline, Cisco executives told investors. The UC segment includes telephony software and hardware, messaging apps and contact center systems.
Sales of Cisco collaboration endpoints, such as Webex Room Kits, also declined. Conferencing revenue, a segment that includes the Webex video meetings platform, was roughly flat but down "marginally," Kelly Kramer, Cisco's chief financial officer, said.
The applications division is coming off two consecutive years of growth, swelling 10% in fiscal 2018 and 24% in fiscal 2019. Cisco's $1.9 billion acquisition of cloud calling provider BroadSoft boosted revenue significantly last fiscal year.
The revenue dip this past quarter was the first year-over-year decline for the applications group in nine consecutive quarters. It was also the first under the leadership of Amy Chang, who took over as executive vice president of Cisco's collaboration division in May 2018.
Cisco is in the process of attempting to convert its 230,000 on-premises calling customers to cloud subscription plans. Monthly subscription revenue should generate more money for the vendor over the long term. Still, the transition can cause revenues to suffer in the short term.
"I think what you're seeing here from a revenue standpoint is just a shift in the business away from a lot of one-time revenue," said Zeus Kerravala, principal analyst at ZK research. "I think over the next few quarters, we will see the group stabilize and start growing again."
But the stumble also renews questions about how successful Cisco has been at selling Webex Teams. Unlike Slack and Microsoft, Cisco has yet to say how many people actively use its cloud-based team collaboration app. Chang previously said the company would withhold that information until the numbers were impressive enough to share.
Cisco faces a serious challenge from Microsoft, which has convinced more than 20 million people to begin using its Teams app daily for calling, messaging and video conferencing. Both vendors are competing for the business of organizations with tens of thousands of employees.
Among small and midsize customers, Cisco is taking heat from video conferencing upstart Zoom. Cisco has responded by making Webex easier to use and manage. Under Chang's leadership, the vendor has attempted to draw contrasts with Zoom through features like automated transcription and People Insights.
Despite the revenue dip this quarter, Cisco's portfolio is strong, analysts said.
Cisco has made smart acquisitions to differentiate its collaboration and contact center offerings, said Dave Michels, principal analyst at TalkingPointz. The company has a convincing story to tell around the simplicity and security of Webex. Its new interoperability partnership with Microsoft could also help boost hardware sales, he said.
As vendors transition to selling cloud-based software and services, revenue growth is becoming a less reliable indicator of success for companies like Cisco, Michels said.
"Cisco is effectively disrupting itself," he said. "They are investing heavily in the cloud in general, with an emphasis on the contact center."
Cisco revenue was down 4% overall in the quarter year-over-year, at $12 billion. Robbins attributed the slowdown in part to a pause in spending by enterprises as they wait to see how emerging technologies like 5G and Wi-Fi 6 develop.
source searchunifiedcommunications
Industry: Unified Communications
