Cisco Systems, Inc. (NASDAQ:CSCO) has been given an Outperform rating with a price target of $30 by Raymond James analysts Simon Leopold, Georgios Kyriakopoulos and Victor Chiu. The analysts are “constructive on Cisco’s vision and focus on the software-centric evolution.” Cisco is now evolving towards more software-centric networks and plans to double the revenues from software services to $12 billion over the next 3-5 years from $6 billion in 2012.
According to analysts, the overall effect of the “disruptive software transition” on Cisco’s gross income dollars is hard to determine, as of now, but they believe the trend “represents a revenue growth headwind but a tailwind for gross margin.”
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Software evolution complicated
Analysts at Raymond James note in a report that software-centric evolution is complicated. The transformation to a software-centric network requires implementation of Software defined networks and Network Functions virtualization to achieve lower life cycle costs for operators.
The report says that scale challenges have surged manifold with data centers and applications, but after deep insight into the matter, Cisco looks well positioned to gain from the evolution. On the other hand, any complacency from Cisco will lead to it losing customers, who will hunt for alternatives, but if transformation occurs too quickly it may hinder the core business of Cisco.
The analysts further note that Cisco Systems, Inc. (NASDAQ:CSCO) is on the right path to dominate and participate in the software-centric evolution. Participation and transparency are two essential factors for the strategy. Application and system manager partners of Cisco include EMC Corporation (NYSE:EMC), International Business Machines Corp. (NYSE:IBM), Microsoft Corporation (NASDAQ:MSFT), and Redhat, and network services and security company partners are Citrix, Symantec, and F5. Cisco believes its strategy could help customers save 75% of operating expenses.
New switches from Cisco beneficial
Cisco Systems, Inc. (NASDAQ:CSCO) rolled over its Application Centric Infrastructure (ACI) solutions along with its Nexus 9000 switches. The company also announced the acquisition of its funded SDN startup, Insieme for $863 million.
Acquisition of Insieme is the most important announcement, according to analysts. Cisco Systems, Inc. (NASDAQ:CSCO) also announced new Nexus 9000 data center switches, which will provide advances on the hardware element of data center evolution. New switches are beneficial for both merchant and custom silicon as apart from fitting into the ACI architecture it also provides very high density, low power consumption and bi-directional optics.
Cisco Systems, Inc. (NASDAQ:CSCO) offers services that bring together its software and hardware strengths to assist operators in managing more complex and larger IT operations featuring both physical and virtual infrastructures.