Cisco Systems, Inc. (CSCO)’s Analyst Day Fails To Convince

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Cisco Systems, Inc. (NASDAQ:CSCO) held its analyst on Tuesday, but Evercore Partners analysts aren’t convinced by the company’s new business model. They are a bit more constructive on Cisco’s Internet of Everything strategy, but they still see the company as a “low-growth player” and don’t believe it can move into the new SDN strategy and keep margins intact.

Cisco Systems changes business model

In a report dated May 21, 2014, analysts Mark McKechnie and Zachary Amsel said they have maintained their Equal-Weight rating and $24 per share price target on Cisco Systems, Inc. (NASDAQ:CSCO). They say there may be a few reasons the company decided to opt for the new strategy. Cisco is basically unbundling its hardware and software and offering it at lower costs but then raising the price of the recurring costs associated with its services.

The Evercore analysts say financial reasons may be part of why Cisco Systems, Inc. (NASDAQ:CSCO) is changing its business model because it will support a more stable dividend while also smoothing out revenues. In addition, the decision may be partially customer-driven and also reactionary because it gives Cisco more head-to-head competition in hardware with its “bare-metal switch solutions.”

Cisco Systems responds to SDN

The analysts do say that Cisco Systems, Inc. (NASDAQ:CSCO)’s response to SDN was “compelling,” as it introduced its Nexus 9K with an ACI software overlay. The company had six customers who were early adopters and 175 current customers for the product. However, McKechnie and Amsel were disappointed that there weren’t any Web 2.0 members on the early adopter panel.

Nonetheless, Cisco Systems, Inc. (NASDAQ:CSCO) management believes margins on the product will be strong right from the very beginning. In fact, they expect the margins to be in line with the high 60s of the company’s switching division. The Evercore team is still skeptical about Cisco’s strategy, but they are watching to see if Cisco will be able to maintain its current DC switching total addressable market and margin structure.

Cisco Systems adds partners for Intercloud

At Tuesday’s analyst day, Cisco Systems, Inc. (NASDAQ:CSCO) also said that it added a number of new Intercloud partners, including NetApp, Dimension Data and Accenture. The company mentioned NTT and Telstra as potential new customers.

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