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UCS Drove Cisco’s Data Center Business Growth in Fiscal 3Q15

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Cisco’s Data Center business 

Cisco (CSCO) announced its fiscal 3Q15 earnings on May 13. Its revenue growth was at the high end of its previous guidance. We discussed this aspect in Cisco Announces Strong Fiscal 3Q15 Earnings, but Weaker Outlook. In this series, we’ll look at Cisco’s segments that managed to grow at a higher rate than the company’s overall revenue growth.

Cisco’s Data Center business continues to have strong growth. As the above chart shows, its Data Center business had a YoY (year-over-year) revenue growth rate of 21%—the highest among all of Cisco’s other segments.

Cisco credited this growth to its UCS (Unified Computing System). UCS is a system that converges networking, storage, security, and applications into one infrastructure. This type of integrated infrastructure offers a cost-effective solution to Cisco’s customers.

During the fiscal 3Q15 earnings conference call, Cisco’s management mentioned that UCS currently has 43,800 customers worldwide. Now, it’s bringing in $3 billion in revenue run rate.

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Cisco experiences faster growth 

With the help of UCS servers, Cisco managed to quickly grow its servers systems business for data centers. According to a report from the IDC (International Data Corporation), Cisco’s worldwide servers system revenue grew at a YoY rate of 19% in calendar 4Q14—much faster than the overall market growth of 1.9%.

In comparison, the two leaders in this market—HP (HPQ) and Dell—showed slower growth. IBM (IBM) is another major player. It showed large negative growth mainly because it divested its x86 server business to Lenovo last year. Oracle (ORCL) is another smaller player in this market.

According to the IDC report, HP experienced strong growth of its x86-based ProLiant servers, mainly in Asia-Pacific and Japan (EWJ)HP launched its next-generation Gen9 ProLiant server in August 2014. These servers are equipped with Intel’s (INTC) Grantley platform. Apart from the divestiture of x86 servers, IBM experience negative growth because of the decline in its POWER and z System mainframes.

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