Cisco's Cybersecurity Shopping Spree (Part 2)

Note: This article is Part 2 of a brief series on Cisco's cybersecurity strategy. You can read Part 1 here. It's not required memorizing for this article.

People thought the best land purchase of all time was the worst land purchase of all time for more than 20 years.

The United States, led by Secretary of State William Seward, bought Alaska from Russia for $7.2 million in 1867. Adjusted for inflation, the acquisition price was about $725 million in today's dollars. That's a steal. Nobody cared in 1867.

Both the media and the public mocked the acquisition. The New York Herald called Alaska a "sucked orange," meaning Russia had sucked the value from the land and sold the U.S. a frozen wasteland. The deal was nicknamed "Seward's Folly," a personal criticism against William Seward for leading what everyone thought was a foolish purchase.

William Seward passed away in 1872. Seward's Folly followed him to the grave. He never knew about the gold discovered at Juneau in 1880. He never knew about the oil discovered at Prudhoe Bay in 1968. He certainly didn't know his now legendary foresight was vindicated by economic benefits of a trillion dollars and counting.

What can the Alaska Purchase teach us about the strategy and upside for Cisco's acquisition of Splunk? A lot more than you'd think.

Let me tell you how Russia sold a literal gold mine.¹

Motives for selling: fur trading and SIEM are unprofitable businesses

Russia wanted to get rid of Alaska because the land was a pain to maintain and defend from the expanding British Empire. They were also broke and needed the money.

The fur trade was paying the bills. It was an okay business, but it cost them tons of money and military resources to operate. Alaska seemed like a giant, frozen, bottomless drain of cash.

The near-term pain of making their Alaska problem go away motivated Russia to sell. The deal with the United States checked too many strategic boxes to refuse. Decent cash infusion? Check. Stop fending off the British Empire? Check. Sell off a marginally profitable fur business? Check.

Is this story starting to sound familiar? It should.

Back in 2016, SIEM looked like a good market for Splunk. Here's the Gartner Magic Quadrant for SIEM from 2016:

Cisco's Cybersecurity Shopping Spree (Part 2)

Splunk's position in the "Leaders" quadrant was a cozy spot on the couch in front of the fireplace at a mansion in Vail. Splunk and LogRhythm were the up-and-comers, just out there chilling in the house enterprise tech players built. IBM, HPE, and Intel owned the mansion, but there was plenty of room for everyone.

Then, things got crowded. Microsoft entered the picture. Seven other startups raised $2.4 billion in capital.² Splunk and LogRhythm weren't the only up-and-comers anymore.

The three most exact Gartner Magic Quadrants for SIEM look a whole lot different than 2016:

Competition arrived, and the SIEM market became a pain to maintain and defend. Financially, the Splunk of the 2020s was a wildly unprofitable business. This chart compares Splunk's revenue and profitability (net income) over its entire time as a public company:

It tells you everything you need to know. Splunk has never (yep, never) had a profitable quarter. In January 2022, they spent $4 billion to earn $2.67 billion. Put differently, they had to spend $1.50 to earn $1. You don't need an MBA to know that spells trouble, capital T.

Cisco kicked off the beginning of the end with a failed $20 billion plus acquisition offer in February 2022.

Private equity entered the room shortly after. Silver Lake invested $1 billion in June 2022, "…eager to work with [Splunk CEO Doug Merritt] and his team to support Splunk’s next phase of growth."

Doug Merritt resigned five months later.

Pile on even more competition and the makings of a paradigm shift from SIEM towards security data lakes, and Splunk's situation starts looking a lot like the frozen wasteland of Alaska in 1867.

Could Splunk have waited things out and kept competing? Sure. This wasn't a fire sale. But, like Russia³ and Alaska, the deal with Cisco checked too many strategic boxes to refuse. Decent return for shareholders? Check. Stop fending off well-capitalized competitors? Check. Sell off a marginally profitable SIEM business? Check.

Alleviating near-term pain often motivates action more than the drudgery of waiting things out for long-term benefits that may never come. This is true in territorial expansion, in cybersecurity, and in your own life.

Russia was happy to sell 665,384 frozen square miles of land and an unprofitable fur trading business for $7.2 million. Splunk was happy to sell $4.1 billion of ARR and an unprofitable SIEM business for $28 billion. They both just needed to make the pain go away.

Next, let me tell you how a directionally correct strategy and an insatiable hunger for expansion led the United States to make the purchase.

Motives for buying: American expansionism and predictable revenue growth

The United States didn't know it was buying a literal gold mine, either. William Seward had a directionally correct hunch about resources (hand-wavey gesture… somewhere). More importantly, he had an obsession with the idea of American expansionism.

By 1867, the United States was already a prolific dealmaker. The Alaska Purchase was the country's seventh major territorial expansion. Back then, America valued expansionism like many of today's investors value growth — more is always better.

If you look at expansionism as the main strategic driver, the Alaska Purchase had very little downside risk for the United States. More land, same continent, decent price, and maybe some resources other than fur. A true "All Weather" strategy. Ray Dalio sure would be proud.

The acquisition of Splunk by Cisco and CEO Chuck Robbins is a similar story. The news was initially met with shock about the price tag, questions about Cisco's ability to execute, and mixed reviews about its potential.

Cisco has been widely criticized for years about low growth and declining innovation. The accusation of "The destructive and illogical ideology that…a company should be run to 'maximize shareholder value' continues to cripple the United States…" is an uppercut to the jaw of Cisco's leadership team.

Splunk was a solid acquisition for Cisco based on financial metrics alone. The $28 billion acquisition price was a relatively pedestrian 7x multiple on Splunk's projected revenue. Buy-side investment bankers everywhere smiled with joy.

Leaders from both companies projected the deal to be cash-flow positive in the first year. They wasted no time making good on that promise Splunk laid off 7% of its workforce a month after the acquisition was announced.

Most importantly for Cisco, Splunk adds $4 billion of smooth, buttery, and predictable ARR to its security business. When you're a 38-year-old company with $57 billion of revenue, boring ol' predictable growth is a central part of your strategy. Nobody is calling this "Robbins' Folly."

But wait. Predictable revenue growth surely isn't what the life of a big company is all about, right?

Here's how new technology can turn an average investment into an iconic one.

Sometimes, you get lucky: gold, oil, and artificial intelligence

The potential upside of a deal isn't always obvious right away. This story has repeated itself throughout the history of tech.

Microsoft and Forethought had no clue its Project Odyssey would turn into Excel, the app that never dies.

Google and YouTube had no clue that traditional media was on the brink of The Great Unbundling.

Sequoia and WhatsApp had no clue the app was going to become the de facto SMS protocol for billions of international users.

Likewise, Russia and the United States had no clue about the gold and oil buried beneath the frozen tundra in Alaska.

So the important question is: what changed?

Technology.

Technologies for finding and extracting gold and oil were basically non-existent when the Alaska Purchase happened. Russia didn't know they were selling a gold mine because they couldn't find it. Simple as that.

The discovery of oil at Prudhoe Bay happened because of major advancements in tech. It took 100 years and a slew of breakthroughs in geological surveying, seismic testing, exploratory drilling to finally discover one of the largest oil fields in North America. On top of all that, it took an 800-mile pipeline to actually use it.

You can rag on Russia all you want for selling a gold mine. The reality is there's no way they could have found it in 1867. The technology just wasn't there yet.

Splunk could be the Alaska Purchase of tech acquisitions. Why?

Artificial intelligence. Specifically, how artificial intelligence gets applied to the security problems we've been struggling with for a long time.

Security Operations makes up a giant subset of the problems. It's one of cybersecurity's largest estates. The company that develops the best AI and ends problems like alert fatigue, SOC analyst burnout, long MTTD/MTTR cycles, and (just maybe) the holy grail of reducing breaches is going to get paid.

Palo Alto Networks and others are working towards this audacious future. But Cisco's acquisition of Splunk might be the savviest strategic move yet.

When you’re building AI models, one of the only factors that matters is how much high-quality data you can run through the algorithm to train it. Training AI to solve security problems for you is a whole different ballgame than building products and storing security logs for customers to analyze themselves.

In the context of AI, Splunk is uniquely valuable. They have access to more operational security data than just about anybody, with 790 enterprise customers paying over $1 million in annual subscription fees.⁴ Customers add petabytes of data to Splunk every year. The total amount of data stored on their platform is probably into the exabytes. Let's just bluntly summarize by saying Splunk has a $%&#-load of data.

AI completely reframes Splunk’s unprofitable business model because its upside is so high. Charging a pile of money to store SIEM data was expensive for customers and unprofitable for Splunk. Taking a loss on the cost of storage and using the data to train AI models looks like a bargain for Cisco.

Buying access to exabytes of security data is like discovering oil at Prudhoe Bay. If Cisco's hunch about Splunk’s value to AI is right, it completely validates the purchase and changes the trajectory of the company forever.

Like William Seward and the Alaska Purchase, we may not know the real outcome of Cisco and Splunk for many years. Part of Cisco’s strategy is being able to wait long enough to find out. Sometimes, you get lucky.

Footnotes

¹Technically, Russia sold a gold mine and an oil field, but this is a metaphor!

²According to Crunchbase data. This stat only includes startups listed on Gartner's Magic Quadrant. Total investments in SIEM companies who didn't make the quadrant raises the amount even higher.

³Saying this out loud so there is no ambiguity: I categorically condemn the current Russian administration's attacks on Ukraine and its behavior towards the rest of the world. Using the Alaska Purchase and the Russia of 1867 as a metaphor for this story is not meant to make or imply a connection or parallel between Splunk and Russia today.

⁴As of its Q4 2023 earnings report.

*** This is a Security Bloggers Network syndicated blog from Strategy of Security authored by Cole Grolmus. Read the original post at: https://strategyofsecurity.com/ciscos-cybersecurity-shopping-spree-part-2/

Thu, 16 Nov 2023 05:56:00 -0600 by Cole Grolmus on November 16, 2023 en-US text/html https://securityboulevard.com/2023/11/ciscos-cybersecurity-shopping-spree-part-2/ Cisco patches serious flaws in Firepower and Identity Services Engine

The high-risk vulnerabilities could allow command injection or lead to a denial-of-service condition.

Cisco released several patches for high and critical vulnerabilities affecting several products like its Firepower network security devices, Identity Services Engine (ISE)) network access control platform, and Adaptive Security Appliance (ASA). The US Cybersecurity and Infrastructure Security Agency (CISA) issued an alert urging administrators to deploy the available patches because “a cyber threat actor could exploit some of these vulnerabilities to take control of an affected system.”

The exploitation of vulnerabilities in network security appliances has become a common occurrence in exact years because these devices are sometimes by nature connected to the internet because they are perimeter devices and provide attackers with a privileged position on the network from where they can move laterally.

Most serious Cisco flaw allows command injection

The most serious flaw is in the Management Center Software of Cisco Firepower and allows an authenticated attacker to send unauthorized configuration commands to Firepower Threat Defense (FTD) devices that are managed through the software. The attacker can authenticate on the web interface and exploit the vulnerability by sending a specially crafted HTTP request to the target device. While Cisco doesn’t specify in its advisory what the attacker can achieve through these configuration commands, it rated the flaw as critical.

The flaw only exists in the Management Center Software, so standalone FTD devices that are managed through the Cisco Firepower Device Manager (FDM) are not affected. The Cisco Adaptive Security Appliance (ASA) software, which is the predecessor to Cisco Firepower is not affected, either.

Two other command injection vulnerabilities were also patched in the Cisco Firepower Management Center, but these can lead to command execution on the underlying operating system, not the managed devices. Exploiting these flaws requires the attacker to have valid credentials too, but they don’t need to be for the administrator account. The two vulnerabilities are rated with high severity.

A fourth code injection flaw was found and patched in both the Cisco Firepower Management Center software and the Firepower Threat Defense software. The issue is in an inter-device communication mechanism and allows an authenticated attacker to execute commands on the device as root. The limitation is that the attacker needs to have administrator role on an FTD device to target the Management Center device, or to have administrator privileges on the Management Center to execute root commands on an associated FTD device.

Two high-severity command injection issues were also patched in the Cisco Identity Services Engine (ISE) and could allow an authenticated local attacker to execute commands as root on the underlying operating system. ISE also received patches for two flaws that can allow attackers to upload arbitrary files to the device or disable the Cisco Discovery Protocol (CDP) processing.

Other Cisco vulnerabilities could lead to denial of service

Additional high-risk vulnerabilities that could lead to denial-of-service (DoS) conditions were fixed in the Cisco Adaptive Security Appliance software, the Firepower Threat Defense software, the Firepower Management Center software, the software in Cisco Firepower 2100 Series firewalls. These were located in the following functionalities: the ICMPv6 message processing, the remote access VPN, firewall inspection rules, the Log API, and ICMPv6 inspection with Snort 2 detection.

Mon, 06 Nov 2023 12:09:00 -0600 en-US text/html https://www.csoonline.com/article/995716/cisco-patches-serious-flaws-in-firepower-and-identity-services-engine.html Cisco Urges UK to Boost AI Skills to Secure Global Tech Leadership No result found, try new keyword!The Chief Technology Officer of Cisco UK, Chintan Patel, has emphasized the urgent need for the United Kingdom to address its shortage of artificial intelligence (AI) skills. Patel insists that this ... Tue, 14 Nov 2023 19:48:44 -0600 en-us text/html https://www.msn.com/ ScanSource Recognized as Americas Distributor Partner of the Year No result found, try new keyword!ScanSource was recognized as a 2023 Americas Distributor Partner of the Year at Cisco Partner Summit 2023 because of its growth performance in 2023. Tue, 14 Nov 2023 02:45:00 -0600 en-US text/html https://www.tmcnet.com/voip/news/articles/457720-scansource-recognized-americas-distributor-partner-the-year.htm Cisco preps validated AI systems for enterprise users

Cisco said it's putting together AI systems to take the technology from 'science project to business-critical'
The vendor is using gear from Intel, Nvidia and Red Hat among others
Cisco said that many verticals and enterprises are using existing AI models

Cisco told Silverlinings that it is gearing up to help enterprise customers as their AI pilots go from “science projects to business-critical projects.”

To that end, Cisco has just announced an expanded roadmap of Cisco validated solutions based on proven industry platforms to provide customers with a pathway towards AI. Cisco is using hardware and solution from AMD, Intel, Nvidia, Nutanix and Red Hat, along with others to put together these systems.

Want to discuss AI workloads and automation challenges? Meet us in Sonoma, Calif., from Dec. 6-7 for our Cloud Executive Summit.

"One thing that we’ve observed in our enterprise customers is that very, very few of them are developing and training these large foundational models on their own,” Todd Brannon, senior director of product marketing, compute told us. “Typically we see them grab an existing model and run with it.”

This is different from how some telco AI models are already beginning to evolve.

So customers could use a model from Hugging Face, AWS, Meta or Open AI, among others, drop the data in, tune the infrastructure and take it from there, Brandon said. Obviously, this may cut down on the compute power and power requirements needed for AI models, which, as Silverlinings has already seen can be extreme.

Cisco said that AI is already growing in the retail, manufacturing and healthcare sectors. The company noted that retail is particularly using AI Inference already. Inference is the process of running live data through a trained AI model to make a prediction or solve a task. This can be used in retail to help best position the products to make a sale.

In time, Brannon said the affect of AI will be felt across all industries.

Tue, 07 Nov 2023 15:17:00 -0600 en text/html https://www.silverliningsinfo.com/ai/cisco-preps-validated-ai-systems-enterprise-users Rubrik Automates Data Security With AI Across The Clouds

Rubrik has expanded its offerings in data security

Free illustration from Pixabay

When I started working in tech decades ago, I quickly learned how challenging it was to ensure data security, governance, compliance, backup and recovery. Data has consistently remained key—twenty years ago and today—making data control and protection imperative. The good news is that data security providers have made great strides as they work to stay ahead of bad actors who would like to compromise enterprise data. Even better, these vendors are now improving their offerings with AI.

One of the companies that has made significant advancements in all of these areas—most recently AI—is Rubrik, which offers a cyber resilience suite that now encompasses both proactive cyber posture and after-the-fact cyber recovery. Rubrik’s solutions are designed to keep cyberattacks from causing significant business impact, with a focus on backups, data protection, threat analytics and cyber recovery across enterprise infrastructures, cloud environments and SaaS applications.

Note that although Rubrik is a client of Moor Insights & Strategy, this article contains our independent analysis of the company, and no one at Rubrik was given final approval over it.

Rubrik’s Background, Offerings And Markets

Before we get to the company’s advances in AI, let’s cover some background. Rubrik, which is headquartered in Palo Alto, California, was founded in January 2014. Since then, it has expanded to more than 3,000 employees and achieved $600 million in recurring annual subscription revenue. Rubrik’s growth has established it as a leader in enterprise backup and recovery, and it now ranks ninth among Forbes’ top 100 private cloud companies.

Rubrik Security Cloud components

Rubrik

The company’s solutions address the specific needs and concerns of global enterprises, with continuous monitoring to guard against being compromised. The Rubrik Security Cloud architecture places a strong focus on four main areas: data protection, threat analytics, security posture and cyber recovery. For data protection, Rubrik creates secure backups and defends against threats such as ransomware. Threat analytics detects anomalies and identifies potential compromises in backups. Rubrik enhances data security posture by using a unified command center to control user access and reduce sensitive data exposure. Lastly, cyber recovery stresses threat containment once a problem has been identified, along with proactive simulations to validate cyber recovery workflows so data can be recovered in an orderly way post-incident.

Rubrik’s backbone for its offerings is a zero trust data security architecture. This framework, influenced by the National Institute of Standards and Technology zero trust model, is anchored by a unique file system from Rubrik that doesn't expose backup data via open network protocols. The company also automatically encrypts cloud storage and backups; better, it stores the data in an immutable format, which is a feature not offered by all backup providers.

These capabilities address a range of use cases across different industries. In the healthcare sector, organizations use Rubrik to safeguard and retrieve sensitive EHR patient data. Financial service firms enhance customer data protection to automate workflows (eliminating manual tasks to allow faster response times), defend against ransomware attacks and ensure adherence to stringent data regulations such as GDPR. Government agencies also employ Rubrik for secure data management; its security cloud is designed to comply with standards such as CJIS, FedRAMP, StateRAMP, PERPA and the Department of Defense’s Cloud Computing Security Requirements Guide.

Rubrik’s AI capabilities

Rubrik

Bringing AI To Data Security

Rubrik has embraced AI-driven technologies, including a new AI assistant called Ruby. Built on Microsoft’s Azure OpenAI Service, Ruby is part of Rubrik's strategy to use AI to Boost customer organizations’ response to cyber threats, especially by making it easier for IT personnel—even ones without cybersecurity knowledge—to identify real threats and respond to them quickly. Rubrik says that Ruby incorporates expertise based on best practices the company has developed working with thousands of customers. Whenever Rubrik detects an indicator of compromise, Ruby notifies security staff and uses its interactive chat interface to guide them through the necessary steps to understand and counteract the threat.

In essence, Ruby brings the exact wave of AI-driven “copilot” functionality to the cybersecurity space. My colleagues at Moor Insights & Strategy have analyzed this type of functionality as it has been introduced at Microsoft, Google, Oracle, Intuit, Zoom and more, so it’s no surprise to see it deployed for enterprise security functions, too. In fact, cybersecurity moves so quickly that an interactive AI assistant may be especially welcome for overtaxed security operations professionals. Time will tell.

Ruby builds on the years of work in machine learning that underlie Rubrik’s Data Threat Engine. This approach detects suspicious data activities such as unusual deletions, modifications and encryptions while reducing false positives and false negatives. Rubrik has also built SentryAI, an in-house AI engine, to analyze customer telemetry data. This enables the company’s customer support teams to offer proactive, personalized recommendations for each customer.

Rubrik Expands Its Footprint Via Acquisition And Partnerships

Rubrik acquired Laminar, a data security posture management platform, in August 2023. Combining Laminar with Rubrik’s existing offerings should provide organizations with additional visibility for their data across all environments to prevent cyberattacks, expand their security posture beyond traditional network and endpoint protection and effectively defend against sophisticated cyber threats.

To broaden its customer reach, Rubrik also partners with leading technology companies including Microsoft, NetApp, Cisco, AWS and Pure Storage. Among other things, these partnerships offer security for hybrid Azure environments, integration with Microsoft 365 Backup, protection across AWS and automated data management using NetApp APIs. Additionally, Rubrik provides automated data protection for platforms such as Oracle and VMware. Rubrik's exact partnership with Aon further expands its data protection solutions, giving Rubrik customers access to Aon cyber resiliency services and Aon clients access to the Rubrik Security Cloud.

Competitive Landscape

Rubrik faces competition from several significant players in the data protection sector. These competitors, including Cohesity, Veeam, Commvault, Veritas, Dell EMC, IBM, NetApp, AWS, HYCU and Azure, offer a diverse array of solutions, covering backup and recovery, data security, data resiliency, data observability and data governance.

Within this competitive arena, Cohesity stands out for its emphasis on hyper-converged data protection, closely mirroring Rubrik's specialization. Veeam offers wide-ranging backup and recovery solutions, while Commvault boasts an expansive data protection suite. Dell EMC has a range of backup and recovery tools, whereas NetApp, predominantly known for storage, extends to data management and protection as well. Veritas, known for its data security solutions such as NetBackup, and HYCU both continue to play significant roles in the data protection industry. IBM Security, which has an expansive ecosystem, is also a substantial player in this domain. When considering vendors in this sector, I suggest evaluating product offerings, market influence, customer reviews and fiscal strength to identify the optimal fit for your organization or sector.

Occasionally, I prefer using a traditional SWOT (strengths, weaknesses, opportunities, threats) analysis to better understand goals and objectives. In businesses where I’ve worked, SWOTs have been instrumental in identifying current or potential problems, helping understand areas that require improvement, or showing how to be more efficient with processes or resources. As I perform an abbreviated SWOT analysis of Rubrik, I see that it faces notable challenges in the competitive cloud data management market, contending with other established firms that can threaten its market position. A potential weakness could be perceived in the complexity of its technology, which may require additional training or support for customers and prospects. Rubrik not having a strong focus on its solutions’ integration with on-premise ERP system data could limit its future application scope and be seen as a weakness. The company must continually innovate to keep pace with rapid technological changes and diverse regional data protection laws, threats that could shape its operational strategies.

However, these challenges also present opportunities. By establishing additional strategic technology partnerships, particularly with ERP vendors, Rubrik could enhance its market presence at the same time it capitalizes on emerging markets’ adoption of digital technologies. While Rubrik addresses its threats and weaknesses, it also has significant opportunities for expansion.

My Take

Rubrik has grown to become one of the key players in the data security market, which is expected to reach $215 billion in 2024. The company is prioritizing data protection through its Security Cloud with a multi-tiered protection model. The Ruby AI assistant appears promising and aligns with the growth needs of the data security market. Many companies have launched AI products early to keep up with competitors and market demands. It remains to be seen whether Ruby was released at the right time after thorough testing, or if it was rushed to market due to these pressures.

The growth of Rubrik through acquisition and its partner program is noteworthy, as it enables the company to expand its offerings and give customers access to complementary technologies. Rubrik's subscription-based pricing is in line with industry standards, offering customers flexibility. As Rubrik continues its growth path, competitors will undoubtedly intensify their efforts. I am eager to see how Rubrik continues with its vision to meet the ever-changing demands of data security.

Thu, 16 Nov 2023 04:13:00 -0600 Robert Kramer en text/html https://www.forbes.com/sites/moorinsights/2023/11/16/rubrik-automates-data-security-with-ai-across-the-clouds/ Cisco Earnings: Slow And Steady, Splunk Acquisition May Be A Catalyst For Future Growth

Hannover Messe Industrial Trade Fair 2023 — Alexander Koerner

Introduction

Cisco Systems, Inc. (NASDAQ:CSCO) will report Q1 '24 earnings on the 15th of November after the bell. I will give my comments on what's expected of the company, my thoughts on the company's longevity and what are the company's biggest concerns in the long term. As I mentioned in my previous article, even with conservative assumptions, CSCO is a great buy at these price levels, therefore I initiated a small position before the report because, in my opinion, the company will perform well. Therefore, CSCO maintains its buy rating.

What happened since the last coverage

CSCO is up around 6% with dividends since my last article, while the S&P 500 is basically flat. In the first article, I argued that the company may not have much in terms of catalysts for revenues and that the AI hype may not help it in the end, and the company's average revenue growth will revert to its historical figures. I also said that it doesn't matter if the company isn't seeing much in terms of growth because the company's margins are outstanding in my opinion, and as long as it can chug along at these levels, the company will reward its shareholders in the long run.

CSCO performance since last coverage (Seeking Alpha)

Outlook

The company for the next quarter expects to see sales to be between $14.5B and $14.7B, while adjusted earnings to be $1.03 at the midpoint. Both numbers are slightly above analysts' estimates of $14.57B and $0.99 a share. As I mentioned previously in my article, the company's 10% sales increase for FY23 will not be sustained and the management sees around 1% increase from FY23 to around $57.6B in sales.

Ever since Q4 earnings, the company trended down, which can be a mixture of the weak guidance and the overall market sentiment that kept the S&P 500 flat over the period. In terms of earnings beats, the company has been beating expectations in eight out of the last 10 quarters in sales and a perfect score on EPS. So, I wouldn't be surprised if the company beats analysts' estimates once again, as I believe the management is purposefully lowballing its future performance.

CSCO Earnings Beat — Earnings Beat (Seeking Alpha)

In terms of margins, I believe there will be a continual improvement in gross and operating margins, although very small, as the company continues layoffs, with the next batch coming from Silicon Valley, where the company is going to lay off 350 employees. This initiative was announced about a year ago when management said it would lay off around 5% of the company's workforce, which would amount to around 4,000 employees. The company has almost finished this restructuring and it's expected to complete in Q1 '24. Employees in Silicon Valley do tend to get paid more than the national average, so I would expect some improvements in margins.

The merger and past worries

Arguably the biggest news that came out since I covered the company is the acquisition of Splunk Inc. (SPLK) for a whopping $28B. The company expects the deal to close by the end of the third quarter of 2024, which is possible, however, it's not unheard of to see some delays. The management also expects the deal to be "gross margin accretive and cash flow positive."

The merger has received mixed reactions. I think it's a good way of increasing the company's revenue growth, which has been growing at an abysmal 2% CAGR over the last decade. The two companies will help enterprises to be more secure amidst the new AI revolution. On the other hand, many analysts have very little faith in CSCO's ability to integrate the acquired companies smoothly. That's a big concern for me too. On paper, it looks like a great move to enhance its portfolio, however, if we look at the past acquisitions that didn't go as planned, we may need to add a bit of a discount.

CSCO's acquisition of Linksys comes to mind where the company basically "neglected Linksys" and was releasing subpar products where the competitors were making much higher quality products, so Linksys fell on hard times.

Another acquisition came to mind when the company bought Pure Digital in 2009, only to sell it two years later as the popular flip camera was losing its footing. This one made no sense in the first place, as the company had nothing to do with consumer electronics, and it's a good thing it stopped.

The acquisitions of NDS Group and Open DNS for $5B and $635m, respectively, are the more exact failures to synergize with the company and eventually led to these companies being sold in 2019. So, there have been some failures to integrate companies into its ecosystem. Fortunately, most of them were small in comparison to the most exact acquisition of Splunk, however, it's something to think about when it comes to the future implementation of SPLK since it would be a costly mistake if it doesn't pan out.

Valuation

Since it's been quite a bit of time since the last coverage, I went ahead and updated my valuation model to reflect the new interest rate environment where the 10-year Treasury yields went from 3.75% to 4.7% as of writing this update (Nov. 6).

For revenue expectations, I went with quite conservative numbers, as I don't believe the company will be able to grow at a much faster pace than it did in the past. I kept the same CAGR just to be on the conservative end of estimates, which will provide me with an extra margin of safety. Below are my assumptions for the three scenarios.

Revenue Assumptions of CSCO — Revenue Assumptions (Author)

In terms of margins and EPS, I also decided to keep it conservative for that extra cushion and went slightly below analysts' estimates.

Margins and EPS Assumptions of CSCO — Margins and EPS Assumptions (Author)

For the DCF valuation, I used the company's weighted average cost of capital as my discount rate (8.7%) and 2.5% terminal growth rate.

On top of these estimates, I also added another 15% margin of safety for that "sleep well at night" feeling. With that said, the company's intrinsic value is around $54 a share, which means the company is trading at basically fair value.

Closing Comments

It looks like the company is trading at its fair value and nothing has changed since my last coverage of the company in terms of its performance. If the company can implement the large acquisition successfully, CSCO will be able to grow at higher revenue levels, which would change its fair valuation dramatically. I have no problem starting a position before the earnings come out, so I started a small position this morning (Nov. 6), and if it drops on the earnings day, I will be glad I only started a small position. If the long thesis remains intact, why would I be mad about being able to buy the company at even lower prices than what I bought already?

I still believe that the slow and steady approach of the company is going to reward shareholders handsomely in the future, and if it can beat my conservative estimates going forward, I would expect a nice performance in the end.

Mon, 06 Nov 2023 06:09:00 -0600 en text/html https://seekingalpha.com/article/4648123-cisco-earnings-slow-and-steady-splunk-acquisition-may-be-a-catalyst-for-future-growth Data#3, Logicalis and Telstra pick up global Cisco accolades

Data#3, Logicalis and Telstra picked up global accolades during 2023's Cisco Partner Summit in Miami.

For the sixth time, Data#3 was recognised as a global champion, scooping up the Cisco Global Software Partner of the Year award.

“Earning the Cisco Software Partner of the Year award is a testament to our team's ongoing dedication to creating software solutions that ensure our customers’ customers thrive in the digital era. This recognition reaffirms our position as a technology leader, driving innovation and delivering tangible results,” Data#3 CTO Graham Robinson said.

Logicalis secured two awards and was named the Sustainability Partner of the Year in a nod to its success in helping customers reduce their environmental impact with tools such as its Digital Fabric Platform that allows customers to measure and reduce the environmental impact of their IT infrastructure. Logicalis is one of only six Cisco Global Gold certified partners and holds the Cisco Environmental Sustainability Specialisation in 15 territories globally.

Logicalis also helped a number of organisations such as Australian company G.James undertake responsible recycling and repurposing of end-of-use equipment and also provided smart building solutions for UK-based UKRI.

For the second year, Logicalis also nabbed Cisco Global Enterprise Networking and Meraki Partner of the Year.

In September this year, Logicalis launched its Cisco-powered Intelligent Connectivity suite featuring Private 5G, SD-WAN, SASE, SSE, SD-Access and ACI Data Centre.

“Over the past 12 months, our goal was to create meaningful change for our industry as we focused on driving sustainable outcomes for customers through our managed connectivity services,” Logicalis global CEO Robert Bailkoski said.

“It’s a privilege for those efforts to be recognised with the awards of Global Partner of the Year for Sustainability and Global Enterprise Networking and Meraki Partner of the Year for the second consecutive year. These accolades reaffirm our commitment to facilitating sustainable business outcomes for our customers moving forward.”

A/NZ Partner of the Year went to Outcomex while Ingram Micro Australia achieved Sustainability Partner of the Year.

Telstra picked up the Mass Scale Infrastructure Partner of the Year and on a regional scale, secured the Collaboration Partner of the Year and Service Provider Partner of the Year for Asia Pacific, Japan and China (APJC).

Across ASEAN, PT Mastersystem Infotama won ASEAN Partner of the Year and Software Partner of the Year.

World Wide Technology Asia Pacific secured Application Experience Partner of the Year and Logicalis Asia won Cisco Captial Partner of the Year.

TM Technology Services won Managed Services Partner of the Year and NTT Data was named as IoT/Industry Partner of the Year.

Commercial Partner of the Year went to Konverge Technologies.

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