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Strong Momentum of Nexus Switches Benefits Cisco

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Cisco adds customers for Nexus switches at a rapid rate

Switching continues to be the most valuable business for Cisco (CSCO), as the segment contributed 29% to the company’s revenues in fiscal 3Q15. As the chart below shows, the Switching segment of Cisco has continued to show positive YoY (year-over-year) growth in the three quarters of fiscal year 2015, compared to the negative growth that this business saw in fiscal 2014.

Cisco mentioned that its Nexus ACI (application-centric infrastructure) portfolio of switches is driving this growth. ACI is a data center networking architecture designed to deliver business and other applications to end users in a cost-effective way. ACI comprises Cisco’s Nexus 9000 switches, a policy model, and an application policy infrastructure controller (or APIC).

During the fiscal 3Q15 earnings conference call, Cisco’s management mentioned that the company added 970 new Nexus 9000 and ACI customers in the last quarter for a total of 2,650 customers.

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Cisco’s ACI initiative benefits its Switching business

Cisco built the ACI initiative based on technology developed by Insieme Networks, as detailed in our article Cisco acquired Insieme to focus on the important SDN trend. The term SDN signifes the transition from a hardware-centric approach for networking to a virtualized network environment designed to enable flexible, application-driven customization of network infrastructures. By leveraging Insieme’s technology, Cisco successfully partnered with companies such as IBM (IBM), Microsoft (MSFT), and SAP (SAP).

Cisco is not alone in leveraging the SDN trend. VMware (VMW) bought SDN vendor Nicira for a valuation of $1.26 billion in 2012. After completing this acquisition, VMware named its SDN platform NSX. The platform leveraged Nicira’s technology. Juniper Networks (JNPR) similarly bought SDN vendor Contrail and launched an SDN controller named OpenContrail.

If you’re bullish about Cisco’s prospects in the SDN market, you could invest in the PowerShares QQQ Trust, Series 1 ETF (QQQ). QQQ invests about 3% of its holdings in Cisco.

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