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Cisco Shares Climb on $1B Cloud Investment

NEW YORK (TheStreet) -- Cisco (CSCO) shares gained 2.09% to reach $22.02 on Tuesday as investors digested the networking giant's $1 billion cloud strategy.

The networking giant's gain easily outpaced the broader tech industry as Nasdaq stocks rose just 0.08%.

On Monday, Cisco announced what it described as the "world's largest global intercloud," an open network of clouds hosted on global data centers run by the networker and its partners.

The San Jose, Calif.-based firm has been beating the drum about the openness of its cloud technology, which uses OpenStack, an open source cloud computing software.

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"By building a network of OpenStack-based clouds among partners, CSCO could enable enterprises to more easily move workloads from one Intercloud provider to another and avoid cloud vendor lock-in," wrote ISI Group analyst Brian Marshall, in a note.

Cisco has also built Application Programming Interfaces (APIs) into its cloud, enabling customers to quickly deploy applications. The company predicts that its cloud effort will accelerate the deployment of the Internet of Everything, an ambitious plan to connect new applications and devices to the network.

Cantor Fitzgerald analyst Brian White believes that Cisco decided to dive into cloud following aggressive moves into the space from competitors such as IBM (IBM), HP (HPQ), VMware (VMW) and others. "Cisco will focus on enterprise-class cloud services for service providers, businesses, and resellers," he wrote, in a note released on Monday. "Already, Cisco offers Software-as-a-Service (SaaS), and today's announcement expands the company's reach across the other two major layers of the cloud to include Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS)."

This is clearly a competitive space. Last month IBM announced a $1 billion cloud Platform-as-a-Service investment. The move opened the tech giant's middleware to the cloud for the first time and also boosted the connectivity of enterprise applications and data to the cloud. Middleware is a form of software that links different computer programs.

Cisco, however, told TheStreet that it will not be competing with Amazon (AMZN) Web Services (AWS), although it is touting its cloud as a way for customers to shift data and application workloads across public and private clouds.

Critics, however, have warned that Cisco may not have the financial wherewithal to keep up and compete with its rivals in the cloud space.

The San Jose, Calif.-based firm beat Wall Street's estimates in its fiscal second-quarter results last month, although its shares tanked on its guidance and weakness in some of the company's key markets.

Cisco did not break out cloud as a specific product category when it reported its second-quarter numbers, but enjoyed double-digit booking growth from "massively scalable data center" buying its UCS and Nexus hardware, according to CEO John Chambers. Cloud services, he added, also continued very strong growth, while Cisco's Meraki cloud networking platform grew 100% compared to the prior year's quarter, amassing a total of 9,600 customers.

Shares of Cisco have gained 5.59% over the last 12 months.

--Written by James Rogers in New York.

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