Service providers warm up to Cisco

Service providers helped Cisco Systems report a record $8.2 billion in revenue in its first fiscal quarter of 2007 (up 25% from a year earlier). The vendor’s service provider business boasted the highest growth of any of its segments for the first time in six quarters.

Cisco’s U.S. service provider business in particular grew 30% from a year earlier. Worldwide, service provider orders for Cisco’s stand-alone business were up 23% from a year earlier, and orders for Scientific Atlanta gear were up 20%.

The CRS-1, Cisco’s core router, contributed $110 million in revenue during the quarter, up 37% sequentially. Meanwhile, orders for the product grew 25% sequentially to $150 million in the quarter. Cisco attributed the popularity of the high-capacity product in large part to increasing network capacity needs related to the addition of more data, mobile data and video traffic onto networks—something Cisco said it anticipated when it designed the platform years ago.

“We didn’t build the CRS-1 to do a billion phone calls,” said John Chambers, Cisco’s chief executive officer.

Scientific Atlanta saw year-over-year growth in the low 20% range, Cisco said, pointing out that the set-top box vendor reported 10% to 12% growth before Cisco acquired it. SA shipped 1.3 million digital set-top boxes in the quarter, an 18% increase from the prior quarter. About 90% of Scientific Atlanta’s sales come from North America.

Cisco’s momentum in the service provider space—which has been noted in recent quarters—prompted Chambers to compare the vendor’s activities there with its enterprise business in the 1990s. Just as enterprise customers in those years began asking Cisco to become more of a partner to them than a mere product vendor, service providers today increasingly want Cisco to provide them with a range of products and offer a lower cost of ownership for all of them.

“The architectural play is the key advantage we have,” Chambers said. “If you’re a service provider, you used to look at us as an individual product category: core or edge routers. You might have looked at us for optical. In the home for Linksys. Scientific Atlanta for video. These products will be loosely and then very tightly coupled.”

Cisco no longer includes its optical products in its advanced technology group but instead in “other products,” a segment whose revenue grew 53% from a year earlier to $455 million in the quarter. The optical business, which grew in the mid-20% range in the quarter from a year earlier, is “still important” to Cisco, Chambers said, citing the company’s leading share of the market for metro dense wavelength division multiplexing equipment.

Cisco’s headcount grew by 1914 people in the quarter, boosting the company’s total workforce nearly 4% to 51,840 people. The additions were spread across sales, engineering and, especially at Scientific Atlanta, manufacturing.