Chambers' Swan Song: Cisco Reports Q3 Growth As CEO Passes Baton

John Chambers on Wednesday took the microphone for the last time as Cisco's chairman and CEO to discuss the company's third fiscal quarter 2015 financials and to give an upbeat introduction of the man who will replace him.

Chambers, who reported strong revenue and earnings growth for the third fiscal quarter, which ended April 25, used the company's quarterly analyst conference call to pass the baton to Chuck Robbins, who earlier this month was introduced as Cisco's new CEO when Chambers retires later this year.

"Chuck, I know you will leverage what Cisco has done. And I know you will make changes as needed," Chambers said.

[Related: Chambers: New CEO Robbins Will Grow Cisco Sales Faster 'Than I Would Have']

Chambers, who will remain in a Cisco leadership role as executive chairman, also joked a couple of times about the pending change in leadership at Cisco, such as a friendly poke at Robbins and at CFO Kelly Kramer after an analyst asked about the volatility in Cisco's service provider business.

"I'm going to break one of my cardinal rules -- Kelly, I see you cringing, and Chuck, feel free to break it too -- and predict our services provider business will grow," he said.

Toward the end of the call, Chambers used a golf analogy to describe the strength Cisco has shown financially compared to its competitors.

"Chuck, you and I are playing on the 18th hole, and we're five strokes ahead of our competitors, who are in the woods looking for their balls," he said.

Chambers also said he has been "humbled" to have led Cisco for 20 years, and said that Robbins will love his new job.

"Chuck, enjoy the moment," he said. "You're going to be a fantastic CEO."

Chambers also broke another of his "cardinal rules" by commenting on Wednesday's rumors that Cisco might be looking to acquire security technology developer FireEye.

When asked about Cisco's merger and acquisition strategy, Robbins responded that the company continues to leverage its go-to-market, scale and channel strategies for growth, and that it has done well with its 2012 acquisition of networking solution developer Meraki.

Chambers then said, without mentioning FireEye by name, "We don't comment on acquisitions that haven't been announced, but I wouldn't count on the one that you may be hearing about today."

Cisco reported third fiscal quarter 2015 revenue of $12.14 billion, more than 5 percent up from 2014's third quarter $11.55 billion.

On a GAAP basis, Cisco reported earnings of $2.44 billion, up 11.9 percent from $2.18 billion it reported last year. On a per-share basis, earnings reached 47 cents, up from last year's 42 cents.

Earnings on a non-GAAP basis were reported at $2.80 billion, up more than 6 percent from the $2.64 billion reported in the third fiscal quarter of 2014. The company also reported 54 cents per share on a non-GAAP basis, up from last year's 51 cents per share. The results beat analyst consensus non-GAAP expectations of 53 cents per share.

For the U.S. market, Cisco reported total revenue for the quarter up 2 percent. Excluding the service provider business, Cisco's U.S. enterprise sector revenue rose 21 percent over last year, commercial revenue rose 11 percent, and public sector revenue rose 10 percent.

However, the U.S. service provider revenue fell 17 percent year-over-year, compared to a worldwide drop of 11 percent, Chambers said.

The number of $1 million-plus deals in the U.S. rose 60 percent in the third quarter compared with last year, while the average deal size rose 30 percent, Chambers said. "In the enterprise, the shift from solutions to outcome is continuing."

On a product basis, switching products accounted for 29 percent of total revenue, and rose 6 percent over last year. Next-generation routing revenue rose 4 percent, collaboration rose 7 percent, data center rose 21 percent, wireless rose 9 percent, security rose 14 percent, and services rose 3 percent.

Service provider video revenue fell 5 percent, and other products' revenue fell 24 percent, compared with 2014.

The growth in data center revenue was driven by strength in the Cisco UCS business, Chambers said. Cisco UCS is on a $3 billion revenue run rate, and has been adopted by more than 43,800 customers, he said.

Cisco is also seeing continued growth in the converged infrastructure market in partnerships with VCE and FlexPod, and is off to a good start with its latest partnership, the VersaStack solution combining UCS with IBM storage, he said.

On the cloud side, Chambers cited Cisco's new OpenStack managed services bundle and a recent partnership with Microsoft Azure as evidence of his company's growing strength in the market.

PUBLISHED MAY 13, 2015