For a company of its size, Cisco executed a fairly short list of technology rollouts in 2024 and made a surprising lack of major updates to its core networking portfolio, which might have contributed to the 23% decline in networking revenue Cisco reported in its latest quarterly financials.
Cisco’s most significant activities of 2024 included further development of its AI networking offerings. The biggest news was its expanded tie-in with Nvidia, which links its Unified Computing System (UCS) family with Nvidia’s HGX-infused M8 server to deliver the accelerated compute capabilities needed for AI workloads such as large language model (LLM) training and retrieval-augmented generation (RAG).
Along with the new hardware, Cisco introduced AI Pods, which are preconfigured infrastructure packages that customers can plug into their data center or edge environments. The Pods include Nvidia AI Enterprise pretrained models and development tools and are managed through Cisco Intersight.
In one of its few hardware-related upgrades of the year, Cisco bolstered its Nexus 9000 data center switch lineup with the new 9364E-SG2 switch, which includes high-density 800G aggregation. The Nexus 9000 line is a core component of Cisco’s enterprise AI strategy, offering congestion-management and flow-control algorithms and telemetry to meet the design requirements of AI/ML fabrics, Cisco said.
On the software front, Cisco closed its $28 billion Splunk acquisition and made moves to integrate Splunk’s technology into its AppDynamics portfolio to help IT teams unify visibility and improve performance troubleshooting across on-premises and cloud environments.
In the security realm, Cisco unveiled what is arguably its largest announcement of the year: its AI-based Hypershield, a self-upgrading security fabric that’s designed to protect distributed applications, devices and data.
Hypershield is comprised of AI-based software, virtual machines, and other technology that will ultimately be baked into networking components such as switches, routers and servers. It promises to let organizations autonomously segment their networks when threats are a problem, gain rapid exploit protection without having to patch or revamp firewalls, and automatically upgrade software without interrupting computing resources, Cisco said.
Networking, AI and platformization goals
Looking ahead, Cisco needs to refocus on enterprise networking and work to make the data center an all-inclusive home for AI applications, industry watchers say. Security technologies must continue to be a priority as well.
“2025 will be an important year for Cisco as the company executes ambitious internal changes while looking to capitalize on a dynamic external environment driven by the AI opportunity,” said Brandon Butler, senior research manager, enterprise networks, with IDC.
Revamped leadership will play a role: In August 2024, Cisco announced plans to reconfigure its networking, security and collaboration business units as part of a restructuring that included a 7% global workforce reduction and established Jeetu Patel as chief product officer.
“As for the internal changes, the ascension of Jeetu Patel to executive vice president and chief product officer is a significant move for the company. Patel has an opportunity to more closely unify Cisco’s broad product portfolio while ensuring it aligns with top growth areas,” Butler said.
A key part of this strategy will be Cisco’s vision for a platform approach to networking and security, which enables more unified experiences and management across Cisco’s products and allows integrated features, like AI, observability and security, to be baked into each one, Butler said.
“Cisco Networking Cloud and Cisco Security Cloud are examples of these platform approaches. Other key areas to watch include the convergence of the datacenter networking and security teams, the continued integration of Splunk across the portfolio and new leadership for the campus, branch, collaboration and IoT business unit,” Butler said.
“Patel has signaled he wants Cisco to act like a startup by moving fast; 2025 could be a year of significant change for Cisco’s platform strategy as Patel looks to execute on that vision,” Buter said.
Streamlining and simplification will be important, according to Roy Chua, founder and principal with AvidThink. Patel should lead Cisco to craft a unified framework spanning IT, OT, and cloud domains, said Chua.
“While enterprises currently manage these separately, a cohesive long-term vision is essential, and it’s been a confusing market ride for Cisco customers in recent years. The strategy should emphasize consistent identity management, policy enforcement, and observability across integrated Splunk-Cisco solutions,” Chua said.
“Continued integration of ThousandEyes for digital experience management, coupled with XDR and Splunk security capabilities, positions Cisco to meet evolving market demands for integrated connectivity with security,” Chua said.
Likewise, “Cisco needs to put all the wood behind its Meraki arrow for campus networking — streamlining the portfolio while enhancing enterprise scalability,” said Chua.
“Competitors like Juniper’s Mist with Marvis, Extreme Platform ONE, and startups Nile and Meter demonstrate the market’s appetite for simplified, integrated networking and security solutions with flexible consumption models,” he said.
“Though promising, Hypershield requires substantial investment to demonstrate seamless integration with physical infrastructure,” Chua added.
Network spending trends
The networking market in general faces a challenging spending environment.
“As the incumbent, Cisco is impacted most by the systemic pressure on network spending,” said Tom Nolle, founder and principal analyst at Andover Intel and a Network World columnist.
“For two decades, the network equipment budget of enterprises has been growing only at about the rate of inflation, and the number of new projects that could add to the pot has declined every single year, to the point where this source (which was once almost 40% of available spending) has almost disappeared,” Nolle said. “The only space that has seen growth is security.”
Cisco’s networking segment, the traditional backbone of its product portfolio, faced significant challenges in the first quarter of Cisco’s 2025 fiscal year, with revenue falling 23% year-over-year, wrote Ron Westfall, Futurum’s group research director in a recent research report.
“This decline highlights shifting enterprise spending priorities as organizations reallocate budgets from traditional networking solutions to higher priority technologies such as AI and cybersecurity,” Westfall stated. “The decline in networking underscores a broader industry shift, signaling the need for Cisco to prioritize emerging opportunities and modernize its traditional offerings. As enterprises increasingly adopt cloud-first strategies, Cisco must navigate this transition to maintain relevance in its core segment,” Westfall stated.
Cisco’s AI networking prospects
The AI era is still in its early days, but Cisco must continue to find ways to capitalize on it, Butler said.
“The company has identified three areas of focus for its AI strategy: AI training infrastructure for hyperscalers; AI connectivity for supporting AI workloads; and AI inferencing, or the buildout of private AI clouds for enterprises,” Butler said.
“Cisco could provide more clarity on each of these opportunities and its solutions to support them, while sharing milestone achievements along the way. For example, Cisco most recently reported it had ‘line of sight’ to $1B of AI orders for its fiscal year, which is a promising sign. Cisco must move aggressively to capitalize on the AI opportunity,” Butler said.
The AI infrastructure boom presents both opportunity and challenge, said Chua. “While Arista has successfully leveraged its cloud data center presence at Meta and Microsoft Azure into expanded AI deployments, Cisco must accelerate adoption of its data center assets: Series 8000 routers, Nexus 9000 switches, and Silicon One chipsets,” he said.
“Competition is intensifying, including from partner-competitor Nvidia’s Spectrum-X line, which powers xAI’s Colossus supercomputer cluster. The surge in AI-driven datacenter interconnect deployments, driven by new data center builds globally, offers growth potential for Cisco’s optics (Acacia) products,” Chua said.
Nolle had a bleaker view of Cisco’s AI prospects.
“AI is a trap for Cisco,” Nolle said. “‘AI networking’ is really fast data center networking, and there’s little Cisco can do to drive it because the pace of that space is determined by how many enterprises self-host AI. There is growing action there, but it’s led by players like HPE, IBM, and Broadcom, not by network vendors, because the current need is to build internally hosted AI; only when you can do that do you need to worry about networks.”
“Areas like campus, and competitors like Arista, are niches. Cisco needs to try not to lose too much there, but there isn’t enough gain to really help them, so there’s no need to focus strategically on either niche missions or niche competitors,” Nolle said.
Cisco’s primary competitive threats are from HPE/Juniper, Ericsson, and Nokia, Nolle asserts.
HPE/Juniper is a threat because it operates closer to the application – and “in the current IT world, any new money to spend has to come from new benefits, which can only come from new applications,” Nolle said.
Ericsson and Nokia are threats because both companies are going after the data center space, which is the only capital-intensive piece of enterprise networking big enough to matter, and because both are working hard on the only strategic application mission that’s on the table, which is real-time applications and IoT, according to Nolle.
“Right now, all of IT is focused on empowering office workers who represent only 60% of the workforce and only 38% of the total labor cost. The other 40/42% are out in the wide world, and to empower them we need not only applications that reflect real-world conditions, but also data (from widespread IoT) about that real world and what’s happening there. If Cisco wants to win, this is the space they need to win in in 2025,” Nolle said.
Source:: Network World