What's going on?
Cisco, the American tech conglomerate, reported better-than-expected earnings on Thursday, and investors appear pretty impressed by the growth in the company’s software and cloud computing businesses.
What does this mean?
Cisco is best known for making hardware (e.g. the modem at your parent’s place probably says Cisco on it), but when its newest CEO took over in 2015, he launched a plan to transform the company from a hardware business into a software behemoth. Tech’s big shift to software, e.g. cloud computing, threatened Cisco’s hardware-orientated business model, and its CEO basically said, “if you can’t beat ‘em, join ‘em.” The stock jumped 3% on Thursday, which suggests investors are happy with the results of the new game plan so far.
Why should I care?
For the stock: Cisco is acquiring companies in order to speed up its transformation.
Cisco’s pivot to software is coming around through acquisitions of software companies. It bought Jasper, a cloud-based service platform, for $1.4 billion in 2016 to jump into the “Internet of Things” (IoT), and its $3.7 billion purchase of AppDynamics in January is indicative of its broader plans to continue its buying spree.
The bigger picture: Cisco is another company preparing for the “Internet of Things.”
The IoT revolves around the idea that all sorts of objects will be linked to the internet in the future. Cisco should have somewhat of a head start, thanks to its huge (hardware) customer base. One of Cisco’s main priorities is to figure out how to sell them the software that will help power IoT – and thereby power its own growth in the years to come.