Cisco Systems, Inc. (NASDAQ:CSCO) Going Back To The Roots?

Cisco Systems, Inc. (NASDAQ:CSCO) became a networking hardware giant that it is today through acquisitions. As the hardware market becomes tough because of intense competition and a shift in networking needs, the company wants to do more merger and acquisitions deals to grow. However, Cisco will be seeking takeover deals in the software segment rather than hardware.

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As Cisco Systems, Inc. (NASDAQ:CSCO) turns focus on software, the company has special interest in security, data analytics, cloud technology and collaboration tools. The reason Cisco is interested more in software is that profit margins for software business is higher than hardware.

Providers of cheap networking hardware such as Huawei have been able to erode Cisco’s profit margins and market share, especially in the developing economies.

Potential takeover targets

Some of the software developers that Cisco Systems, Inc. (NASDAQ:CSCO) may target for acquisition include data storage provider Nutanix and data analytics software maker Palantir Technologies. There are plenty of options out there for Cisco.

When it comes to acquisition, Cisco has the resources to close the deals it desires. The company had about $53 billion in the bank as of January 24. Given the challenge in the hardware business, there is a good chance that investors would support software acquisition to reboot growth.

Organic growth not let out

In addition to growing through acquisitions, Cisco Systems, Inc. (NASDAQ:CSCO) is also investing to grow organically. The company announced plans to put $2 billion to the building of a software technology known as Intercloud. The technology is aimed at enabling companies to move large amounts of Internet traffic in and out of their data centers and cloud servers.

Latest financial performance

Cisco Systems, Inc. (NASDAQ:CSCO) posted revenue of $11.94 billion in the latest quarter, up from $11.16 billion a year earlier. Analysts predicted revenue of $11.8 billion for the quarter. Coming to the bottom-line, the company earned $0.53 a share, better than $0.47 a year ago and above $0.51 that analysts predicted.

The quarter was supported by high demand for new hardware. Cisco overhauled its flagship line of networking gears.

Cisco Systems, Inc. (NASDAQ:CSCO) opened the day at $29.15 and is currently trading at $28.83.

About the Author

Adam is a staff reporter for US Markets Daily Publications & Media, covering foreign affairs and domestic policy.

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