As Wall Street toasts Cisco Systems Inc.'s (CSCO) - Get Reportfirst fiscal-quarter results and its surprising forecast for second-quarter growth, the networking company's acquisitions are responsible for a good chunk of its growth.
CEO Chuck Robbins called out purchases such as the $3.7 billion acquisition of AppDynamics Inc. and suggested that the pending $1.9 billion acquisition of BroadSoft Inc. (BSFT) will help future quarters.
Cisco shares gained 5.86% to $36.10 on Thursday.
The networking company, based in San Jose, Calif., has been shifting emphasis from hardware to software and other products or services with recurring revenue. In the first quarter recurring revenue was 32% of total sales, up more than 3 percentage points from the same quarter last year and up 1 percentage point from the fourth quarter of fiscal year 2017.
Applications were one of Cisco's strongest product categories, growing 6% in the quarter. The unit includes cloud voice, conferencing, the Internet of Things and other applications. Appdynamics drove the gains, Robbins said.
"Our acquisition of AppDynamics is core to our capability of providing end-to-end analytics, from the network to the data center to the application," he told investors Wedneday.
Application monitoring and analytics outfit AppDynamics is one of Cisco's larger deals; it closed in March.
Cisco also emphasized its portfolio of multi-cloud products and services that support corporations that combine public clouds such as Amazon.com Inc.'s (AMZN) - Get Report Amazon Web Services, Microsoft Corp.'s (MSFT) - Get Report Azure, Alphabet Inc.'s (GOOGL) - Get Report Google Cloud Platform and private clouds based on a company's own servers.
"We're ... investing to develop and acquire new technologies to extend our Multicloud portfolio," Robbins said. The group includes Cisco's new Application-Centric Infrastructure anywhere initiative, which provides software-defined networks for connecting to apps via public clouds and other infrastructure. In addition to AppDynamics, Robbins said Cisco's acquisitions of application management platform CliQr Technologies Inc., security outfit OpenDNS, cloud network security developer Cloudlock Inc., and software-defined networking company Viptela play into ACI.
The October purchase of BroadSoft will help drive cloud and subscription revenues, Robbins said. "BroadSoft has 19 million subscribers in thegrowing cloud voice and contact center space and will enable Cisco to offer an even broader portfolio of collaboration solutions to our ustomers, on-premise and in the cloud," he said.
Cisco has the resources to make more deals. The company reported $71.6 billion in cash and marketable investments at the close of the quarter, with $69.1 billion held at overseas subsidiaries. A tax holiday on offshore cash could fuel dividends, buybacks and acquisitions, CFO Kelly Kramer said during the call.
"We want to make sure we continue to have enough fire power to continue to be able to do the right acquisitions to help us position Cisco right for the long term," Kramer said.
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