Survey: Cisco Partners Seeing Sluggish Third Quarter, 'Lukewarm' Response to SDN

Cisco partners saw a sluggish start in the networking giant's third fiscal quarter, but expect things to pick up in the fourth quarter, as pipelines for Cisco data center and its Unified Computing System (UCS) look especially strong, according to a report this week from research firm Baird Equity Research.

The report, which included survey results from 81 Cisco resellers totaling $10 billion in annual Cisco sales, also found that Cisco partners are hearing "lukewarm" responses from customers around software-defined networking (SDN), and are seeing a "limited number of purchase orders" for Cisco’s Nexus 9000 switching platform, a key component of the company’s Application Centric Infrastructure (ACI) SDN offering.

According to the survey, one-third of solution providers in Cisco’s third fiscal quarter, ending this month, saw sales fall short of their quarterly projections. Forty-one percent of partners, meanwhile, said their sales for the quarter were in line with expectations, while the minority, at 26 percent, said they exceeded expectations.

[Related: EMC, Cisco Move To Clear Up VCE Vendor Conflict With New Channel Program ]

Partners, Baird Equity said, attributed the lackluster quarter to weaker-than-expected sales in certain Cisco product lines, such as collaboration, where Cisco itself saw sales slide 7 percent year-over-year in its second fiscal quarter.

San Jose, Calif.-based Cisco took a hit overall in the second quarter, with profits sliding 54 percent year-over-year to $1.4 billion. Cisco's switching and routing businesses were also down 12 percent and 11 percent, respectively, but the company said it was weakness in emerging markets and the service provider segment that especially dragged them down.

Bill Smeltzer, CTO at Focus Technology Solutions, a Seabrook, N.H.-based Cisco partner, said his Cisco business was up "slightly" in Cisco's third fiscal quarter, but that he's starting to see Cisco rivals like Hewlett-Packard and Extreme Networks, which acquired Enterasys earlier this year, accounting for more and more of Focus Technology's Ethernet switching deals.

"The legacy Cisco corporations continue to go with Cisco because they are Cisco across the board," Smeltzer said. "But on net new greenfield opportunities, we are definitely seeing people not go with Cisco. We are seeing a lot of HP and, believe it or not, the Extreme/Enterasys thing seems to be picking up some heat, too."

Looking ahead, the Baird Equity survey showed that Cisco partners, despite a "sluggish" third quarter, expect a change for the better in Cisco's fiscal fourth quarter. According to the results, 44 percent of the solution providers surveyed said they expect "better-than-seasonal" Cisco business next quarter. Forty-seven percent expect "normal seasonality," while only 9 percent expect a "worse-than-seasonal" quarter.

The bulk of that optimism, the survey shows, stems from UCS. Cisco partners, in fact, for the past six quarters have identified data center switches and UCS as the Cisco products for which they see the most demand, according to Baird.

Smeltzer said Focus Technology is definitely seeing growth in its UCS business, and that UCS sales are more and more commonly "beating out Dell and HP server sales." What's more, he said a UCS sale will often pull through additional sales of Cisco's Nexus line of data center switches.

"I would say 50 percent of the time we are seeing a UCS sale lead into a Nexus sale," Smeltzer said. "The other 50 percent of the time we see just a UCS sale attach to an existing network, whether that be a legacy [Cisco] Catalyst or from another vendor."

Kent MacDonald, vice president of Converged Infrastructure at Cisco partner Long View Systems, said his Cisco business in Cisco's third fiscal quarter was up between 30 percent and 40 percent year-over-year, with data center and UCS sales being "by far" the strongest.

"’More often than not, we see UCS as a pullthrough sale, either with Vblock or FlexPod, but we are definitely starting to see pure UCS traction growth, as well," MacDonald said.

NEXT: SDN A No-Show?

Despite all the industry buzz around SDN, solution providers don't expect customers to rip and replace their current network infrastructures -- at least not yet -- according to Baird's survey. Seventy-two percent of the Cisco partners surveyed said their clients are "curious" about SDN, but are planning to wait before actually deploying SDN technologies like Cisco ACI. One Cisco partner surveyed even dubbed SDN "Still Does Nothing."

As for adoption of the Cisco Nexus 9000 platform -- a core component of Cisco's overall SDN and ACI strategy -- 35 percent of partners said their customers are waiting for the launch later this year of Cisco's Application Policy Infrastructure Controller (APIC), another key piece of ACI, before taking the leap.

Meanwhile, roughly 18 percent of partners said customers seem interested in Nexus 9000, but say the "business case isn't compelling yet."

"I haven't seen a lot of customer questions on it just yet," Smeltzer said of Nexus 9000 and ACI. "But I will tell you from going on a lot of customer calls that I'm not hearing a lot on VMware NSX [software-defined networking] either."

Sudhir Verma, CTO at Force 3, a Crofton, Md.-based Cisco partner, said he hasn't seen customer deployments of the Nexus 9000 yet, but that the interest is definitely there.

"Those conversations are happening," Verma told CRN. "Customers aren't replacing [their existing infrastructures] today, but we are definitely looking forward to driving that portfolio."

PUBLISHED APRIL 29, 2014