Monthly Research Update

Experton Group Weekly IT News

Cisco and OpenPages Show Strong Gains, Siemens Quits

By: Cal Braunstein

Cisco Systems Inc. posted strong fourth quarter and annual financial results while OpenPages Inc. delivered very positive first half 2008 results. In other news, Siemens AG plans on ending its joint venture with Fujitsu Ltd.

Focal Points:

• Cisco reported record fourth quarter revenues of $10.4 billion, up 10 percent from $9.4 billion in the year-ago quarter. Net income for the quarter on a GAAP basis was $2.0 billion, up from $1.9 billion in the prior year's second quarter. For the full fiscal 2008 year Cisco revenues grew to $39.5 billion, an increase of 13 percent from $34.9 billion in the previous year. Net income for the year on a GAAP basis was $9.6 billion versus $9.4 billion in previous fiscal year. Year over year Asia Pacific growth was 19 percent while Europe, Japan, and the U.S. saw increases of 11, 10, and seven percent respectively. From a product viewpoint, the advanced technologies grew 15 percent while routing and switching revenues gained in the single digits only.
• OpenPages, a privately-held provider of enterprise risk management (ERM) solutions, reported a strong performance for the first half of 2008. New bookings in the second quarter grew 55 percent over the same quarter last year. Company officials claimed the accelerated momentum was fueled by new product introductions, significant product innovations and industry recognition for the company’s technological excellence. In 2007 OpenPages reported worldwide revenue growth of 150 percent, which Experton Group estimates grew its revenues to approximately $75 million.
• According to Wall Street Journal sources, Siemens plans to end its computer-making venture with Fujitsu, which may result in the sale or dismantling of Fujitsu Siemens Computer (Holdings) BV (FSC). The joint venture was created in 1999. Siemens is required to inform Fujitsu by September this year if it wants to pull out, otherwise the contract will automatically be renewed for 5 years from 2009. Siemens has 50 percent stake in FSC, which is estimated to be valued at more than $4 billion (2.6 billion euros). In the latest fiscal year FSC, which makes mainframes, PCs, and other servers, had 6.6 billion euros in sales with a profit of 105 million euros but is facing stiff competition from Dell Inc. and Hewlett-Packard Co. in its PC market. It is unclear at this time if Fujitsu will exercise its right of first refusal or if other buyers will leap in.

Experton Group believes Cisco's and OpenPages are executing effectively against their visions of their respective markets. While both the ERM and networking markets are morphing and will continue to do so over the next two years, both firms are taking actions to tackle the changes and are expected to drive strong revenue growth, even in a slowing worldwide economy.

IT executives should understand the vendors' visions and strategies, as well as those of their strategic partners, and apply the relevant components to their own corporate strategies, so that they are best positioned for the upcoming governance and technology shifts.

Experton Group believes FSC's saga shows the difficulty of competing in the computer hardware business in a limited geographic space. Global players are better able to leverage their volumes and aggressively strike tough bargains. Experton Group views it as quite likely that Siemens will pull back on its commitments, as the company is disappointed with FSC performance and has itself been regrouping and reorganizing. If Fujitsu does not buy up the shares, which Experton Group views as unlikely, Lenovo Group may be a logical buyer, as it had attempted to acquire Packard Bell last year but lost out to Acer Inc. IT executives that are buyers of FSC products should pay careful attention to this space and be prepared for dissolution of FSC or a new FSC to exit certain markets.