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Cisco's TelePresence & Webex Offerings Outperform Rest of Portfolio

Cisco's Q4 FY09 financials are in and two product offerings easily outperformed all of the others: TelePresence and Webex. Total Q4 FY09 revenue was down 18% YoY, with routing revenue down 27% and switching revenue down approximately 20%. In stark contrast TelePresence and Webex revenues were up 97% and 14%, respectively, and Unified Communications revenue declined only 5%, a relatively good performance in a poor economic climate. All three product categories are part of Cisco's Advanced Technologies group, a collection of product offerings that currently account for about one quarter of the company's total $36 billion revenue base.It is easier to grow TelePresence revenues from a relatively small base level compared to Cisco's major product category offerings, but it is an encouraging sign that the high ticket offering (a pair of TelePresence rooms can cost several hundred thousand dollars) is finding a strong market when sales of traditional communications products have declined during the past year. Cisco helped ignite the TelePresence market less than three years ago and has been driving it through a wide range of marketing and promotional activities, including television advertising campaigns and product placement. It appears to be a favorite offering of John Chambers, Cisco's Chairman/CEO, who first predicted that it would be a multi-billion dollar product line for Cisco in his opening keynote at the company's Networkers 2006 conference. Cisco TelePresence competes against like, but not identical, offerings from such well known videoconferencing suppliers as Polycom and Tandberg; HP is also a big TelePresence market player.

Webex, a $3.2 billion acquisition by Cisco in Spring 2007, is a SaaS-based conferencing and collaboration offering ideally suited for companies currently restrained from making large upfront capital expenditures. At a time when the mass market is learning about the advantages of UC conferencing and collaboration capabilities, but cannot afford a privately owned enterprise-based solution, Webex allows customers to take advantage of its minimal startup costs and fixed monthly service fees. Though there are many lower priced conferencing and collaboration services, the Cisco name and marketing machine keeps Webex at the forefront of the industry. Advertising for the service appears to have been stepped up recently, with the Cisco name prominently included with the Webex brand name. Cisco also maintains a dedicated Webex website, a smart move considering the product clutter of its primary corporate website.

Webex and Webex Connect (see Cisco's Big Collaboration Announcement: A Game Changer?) position Cisco as the early leader in the evolving market for Cloud-based Unified Communications, but the competition is heating up. Shortly after the Fall 2008 Webex Connect announcement, Microsoft announced its Azure Cloud Platform, and Google introduced Google Wave this past May at the Google I/O conference.

The 5% decline in Cisco Unified Communications revenue was to be expected, because overall market demand for telephony systems and peripheral applications has declined the past several quarters. Cisco has not yet released its shipment data for the past quarter: Cisco's Q1 2009 Unified Communications Manager line station shipments declined precipitously from the preceding quarter, but still managed slight growth compared to 2008. I believe Q2 2009 shipments are not likely to sequentially decline another 30%, but at the same time not match Q2 2008 levels.