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New Products CRS-X and NCS Drive Cisco’s Routing Segment Growth

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Verizon selects Cisco for its 100 Gbps metro project

In the previous part of this series, we discussed how Cisco’s (CSCO) Nexus portfolio of switches drives growth at the company’s Switching business segment. Cisco’s Routing business, called Next Generation Network (or NGN) Routing, is the second most valuable business segment for the company. Cisco derived about 16% of its revenues from the NGN Routing segment in fiscal 3Q15.

During its conference call to announce its fiscal 3Q15 earnings, Cisco mentioned that its new Routing products such as CRS-X and NCS are driving the growth in this segment. Cisco management also mentioned that Verizon (VZ) is moving toward building its 100 Gbps metro fiber-optic network and has decided to test and deploy Cisco’s NCS Routing solutions. Ciena (CIEN) is another vendor that will supply switching products to Verizon in this project.

As the chart above shows, the YoY (year-over-year) revenue growth rate for Cisco’s Routing business continues to improve in the positive territory. This business’ revenue growth had shown large YoY declines in fiscal 2014.

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Alcatel–Lucent a major competitor of Cisco in Routing market

Despite the growth in Cisco’s Routing segment, the company still needs to overcome the competitive issues. Alcatel–Lucent (ALU), a French company that competes with Cisco in the networking market, gained a contract with China’s (FXI) major telecom providers to provide its 7950 XRS core router. Here, Alcatel–Lucent took advantage of Cisco’s relatively weak position in China.

Incidentally, last month, Nokia (NOK) agreed to acquire Alcatel–Lucent for $16.6 billion. The combined entity of Nokia and Alcatel–Lucent could become a larger force in the Routing market.

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