Another analyst sees Cisco UCS deployment delays

Avian cites "internal politics" at F 100 customers, but Cisco not feeling it overall

One of the reasons Cisco's Unified Computing System may be generating little sales is that customers are divided on whether to replace current HP servers with the platform, or stick with HP. Internal bickering among some Fortune 100 customers may be delaying their UCS deployments, Avian Securities found.

In a bulletin on Cisco's upcoming Q2 results, Avian analyst Catharine Trebnick writes:

We did hear rumblings within the larger Fortune 100 corporations as to UCS production decisions being delayed because of internal politics between HP server proponents and CSC UCS advocates. However, VAR's are actively marketing UCS and the ROI is very attractive to Fortune 5000 enterprise segment.

Another analyst, Oppenheimer & Co.'s Ittai Kidron, found that while there's a lot of interest in UCS, so far the data center consolidation platform is generating few sales.

The issue is not crimping Cisco's ability to execute overall, however. Like Kidron, Trebnick expects Cisco's Q2 sales to come in ahead of estimates of $US9.4 billion. And like Kidron, she cites improved IT spending:

Our VAR discussions indicated IT spending was focused on the Data Center to upgrade to 10GigE and adjust for the increase in network traffic and latency-sensitive content (e.g video, voice). We expect revenues to be up sequentially for IP Telephony and Web/collaboration tools and attribute this requirement to increase productivity as the need to drive down costs.

Demand for data center build-outs and upgrades drove sequential growth in core switching segment, Trebnick states. Avian expects sales for Cisco's Advanced Technology segment to be up sequentially thanks to demand for IP Telephony, Unified Communications and WLAN products. Cisco saw some "key wins" for its ASR 9000 carrier router in the quarter, and was aggressive on closing both service provider and enterprise deals by offering, among other incentives, 0% financing for services, Trebnick states.

Cisco is also building a strong pipeline in switching, IP Telephony, WLAN and collaboriation for Q3, Trebnick notes. Increased deployments of managed video and IP services will drive sales in the service provider sector next quarter as well, she states. And Trebnick expects Cisco to hire up to 2,000 employees over the next few months.

Avian expects Cisco to guide ahead of estimates of $US9.52 billion in revenue and $0.37 per share earnings in for Q3. Initial revenue for Acadia, the joint venture with EMC to sell pre-integrated vBlock data center elements, is expected in late Q3 and Q4, and into Cisco's fiscal year 2011, Trebnick states. Her forecasts do not factor in Cisco's Starent and Tandberg acquisitions.

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