How Cisco’s Security and Routing Segment Drives Revenue Growth

Revenue rose 2% YoY

Cisco’s (CSCO) Security business continues to be an important driver of its revenue growth. In the company’s last fiscal quarter, its Security segment’s revenue rose 11% year-over-year (or YoY).

Revenue growth from Cisco’s other segments was muted in the last quarter. The revenue from its NGN Routing and Collaboration businesses rose 5% and 3%, respectively, in fiscal 2Q16. Cisco’s Wireless segment saw flat revenue YoY. Its Switching and Data Center revenue fell 4% and 3%, respectively.

How Cisco’s Security and Routing Segment Drives Revenue Growth

Mobile traffic drove Cisco’s revenues

The NGN Routing segment accounts for 15.6% of Cisco’s total revenue. The routing business reported an 8% YoY fall in revenue in fiscal 1Q16 after posting 3% YoY growth in fiscal 4Q15. The fall in fiscal 1Q16 was a result of negative growth due to changes in telecommunications service providers’ spending plans.

Historically, Cisco Systems and Juniper Networks (JNPR) have controlled the core router segment. The companies had a combined market share of over 80%. This scenario changed with the reentry of Alcatel-Lucent (ALU) into the core router segment in 2012.

Alcatel-Lucent’s market share in edge routing has risen to 24%. The company edged out Juniper Networks to become the number-two vendor in this segment in 2010, despite entering the market in 2003. Alcatel-Lucent can use this platform as leverage to increase its market share in the core router segment. Alcatel-Lucent was acquired by Europe’s (EFA) Nokia (NOK) in 2015.