Why Is Cisco Optimistic about the Cloud Business Segment?

Cisco expects hybrid cloud business to grow

Cisco (CSCO) provides infrastructure to cloud providers, including web-scale players and the private cloud. The company believes that the end game is a hybrid world. It has a number of SaaS (software-as-a-service) offerings and expects all of its SaaS platforms to experience double-digit growth in fiscal 3Q16.

Cisco’s CEO Chuck Robbins stated that the company has the second-largest enterprise SaaS platform in the world in WebEx, seeing double-digit growth in fiscal 2Q16. Cisco’s Meraki Cloud Networking and Security Cloud offerings also experienced double-digit growth.

Why Is Cisco Optimistic about the Cloud Business Segment?

Cloud services to drive data center traffic

According to the Cisco Global Cloud Index, total data center traffic is expected to reach 10.4 zettabytes in 2019 compared to 3.4 zettabytes in 2014. Data center traffic from the cloud will account for 83% of total data center traffic in 2019 compared to 61% in 2014.

With the rise in interconnected services such as bring your own device, machine-to-machine communication will proliferate data flow across devices. In turn, this will create a requirement for network and computing platforms. Cisco is trying to leverage the fast growth of the cloud services market.

The International Data Corporation expects that cloud computing will become a $27.8 billion market by 2019. Amazon (AMZN) is the overall leader in the cloud space, but IBM (IBM) leads in the private and hybrid cloud space. However, it was Microsoft (MSFT) that made the highest growth in the cloud market last year. Microsoft’s Azure business grew by 124% YoY last year.

Cisco accounts for 3.2% of the Technology Select Sector SPDR ETF (XLK).