One such manufacturer, Cisco, reported a 29% jump in net income to $1.4 billion, up from $1.1 billion in the first quarter of 2004. Cisco’s revenue was $6.0 billion, up 18% from $5.1 billion a year earlier. However, analysts were expecting better and CEO John Chambers conceded that persuading businesses to loosen the purse-strings “continues to be challenging”.
Revenue growth was strongest in its smaller segments: wireless, home networking and storage, which all showed over 50% growth. With corporate spending still patchy, Cisco needs these new areas to underpin its current momentum. Chambers has prioritised IP (Internet protocol) telephony as a future core business and Cisco recently shipped its millionth IP telephone in Europe. This quarter it also celebrated two large deals in the US: Bank of America plans to deploy 180,000 IP phones and Ford Motor Company has bought 50,000. Revenues in this market increased 15% year-on-year.
But Cisco failed to net the biggest fish in the lucrative public telecoms market: a new IP core network for China Telecom, worth $100 million and snagged by rival Juniper Networks.
Cisco is faring better in the security sector, growing revenues here by 20%. It has retained the lead in the overall VPN and firewall appliance and software market it took from Check Point in mid-2004 and is tied with Internet Security Systems (ISS) for leadership of the intrusion detection and prevention systems (IDS/IPS) market, according to analysts Infonetics Research.
Like Cisco, ISS holds 22% of the IDS/IPS market but it is hoping its multi-function protection device Provenita will take it ahead of the networking giant. Its third quarter brought cause for optimism: ISS’s net income grew 27.3% to $6.4 million and its product revenues increased 22% to $31.2 million.
Proventia accounted for 61% of that revenue. Subscriptions revenue (which includes product support, content updates, term licences and monitoring fees for managed services customers) represented 49% of total revenues, up 27% from $28.2 million a year ago to $35.8 million. While managed services revenue increased slightly to 13% of total revenues, professional services declined in relative and absolute terms as ISS sought to shift services and education responsibilities to system integration and channel partners.
ISS says it expects to expand by internal development rather than acquisition and its R&D spend increased by $10.5 million in the last quarter. Much of this was down to its acquisition of Cobion, the German anti-spam and content filtering company, for $33.5 million in January 2004.
SafeNet is a small but fast-growing competitor to ISS with a focus on customers in the US Government. Its third-quarter revenues increased 242% from $17.4 million to $59.5 million. Net income was SafeNet’s highest yet at $9.6 million, up from $2.7 million in the same period in 2003.
The US Department of Defense accounts for around 15% of SafeNet’s revenues, while other large customers include the US Air Force and an unnamed Homeland Security systems integrator. SafeNet also looks set to profit from the emergence of mobile phone based security threats, such as the recent Skulls software, which disguises itself as a ringtone download and then disables the phone. In response to such threats, Texas Instruments uses SafeNet’s security technology in the chips it makes for Nokia phones.
Meanwhile systems management giant BMC Software hauled itself out of more than a year in the red to show a profit of $12.7 million in its second quarter of fiscal 2005. This was mostly thanks to cost cutting initiatives which shaved $17.6 million off expenses, through offshoring, 785 redundancies and office closures.
Revenues for the quarter increased 6% to $355.1 million from $333.8 million a year ago and with bookings up 11%, BMC looks to be riding the wave of increasing IT investment.
BMC has moved from mainframe management specialist to services management leader – an increasingly prominent software sector, according to research group Forrester: “Once considered a boring topic for lower-level IT operations staff, CCM [change and configuration management] is now on the agenda of CIOs.”
BMC’s turnaround is largely due to two key acquisitions: Remedy, bought from Peregrine Software in 2002, and its 2004 acquisition of configuration management software vendor Marimba for BMC $255.5 million.
BMC’s Mainframe Data Management product is still its largest source of income and its $46.0 million in new mainframe management contracts accounted for a third of BMC’s new licence revenues in the three months to 30 September.
Services management – BMC’s version of business process management – is its fastest growing sector. New licence revenues here jumped 68% from $23.1 million to $38.7 million on the back of the Marimba acquisition.
Distributed systems management remains BMC’s largest source of new custom – but only just. Revenues were dragged down from $54.2 million to $46.7 million year-on-year by poor performance from its Patrol line and increased competition from smaller vendors such as Altiris. BMC’s small identity management section (just 2% of total revenues) is getting smaller, with licence revenues shrinking by 42%.