Cisco Bets on Security to Drive Switch Sales
June 20 2017 - 2:29PM
Dow Jones News
By Rachael King
Cisco Systems Inc. is placing a major bet on security to revive
sluggish sales of networking switches, its biggest business, as
part of a multiyear effort to fend off competitors and turn around
the struggling company.
The networking giant on Tuesday revealed a new security service
it says can identify and stamp out malicious software cloaked by
encryption on computer networks. Today, more than 40% of
cyberattacks may be hidden in encoded internet traffic, according
to security researchers, so detection is crucial to stopping
fast-moving attacks.
Cisco is counting on this new service to help drive sales of its
switches, hardware that links together computers on corporate
networks. The service, called Encrypted Traffic Analytics, will be
available as a subscription in September with its new line of
Catalyst 9000 switches. The company wants to show how its new
hardware, which can be programmed, will run a variety of new
services that can bring in recurring revenue.
Cisco's switching business, which made up roughly 30% of its
overall revenue in the latest quarter, is in need of a makeover as
a raft of competitors have stolen some of its leading market share
over the years. The company's revenue has fallen for six straight
quarters because of declines in the switching and router businesses
that once made Cisco the world's most valuable company by market
capitalization.
While the market for switching hardware has risen about 16% to
$24.4 billion between 2010 and 2016, Cisco's annual sales in that
department remained relatively flat, at about $13.9 billion.
Chief Executive Chuck Robbins has sought to move beyond Cisco's
hardware legacy and into software and services since he took the
helm in July 2015. The company spent $6.3 billion on research and
development in the ensuing year, up from $5.9 billion in the
previous period, as it began to expand its reach in security,
analytics and automation.
As corporations and governments grapple with increasing
cyberattacks, Mr. Robbins sees advanced security as one way to
reinvigorate switching sales. The company in recent years has made
a number of high-profile security acquisitions including Sourcefire
and OpenDNS. In the nine months of the fiscal year through April
30, the security division's sales have risen about 12% to about
$1.6 billion.
The need for security will only increase as networked sensors in
everything from retail stores to self-driving cars significantly
boost network traffic. In an earnings call with analysts in May,
Mr. Robbins said customers will need security software embedded in
the network to stop threats as soon as they arrive.
By analyzing encrypted traffic, the company is solving a network
security challenge it previously thought unsolvable, Cisco
executives said. The software can analyze metadata -- the secondary
information such as an email time stamp or the address of the
sender -- in encrypted communications to find behavior that is
indicative of known threats. Since the service doesn't need to
decode messages such as the content of an email message, privacy is
preserved.
Organizations including Royal Caribbean Cruises Ltd. and the
National Aeronautics and Space Administration are testing the new
Cisco Catalyst 9000 switch and its security offerings, Cisco
said.
Cisco isn't the only company doing work in behavioral pattern
recognition around network traffic, but it may be the furthest
along, particularly with encrypted traffic. Arbor Networks, for
example, offers products that look at network traffic behavior to
disrupt so-called denial-of-service attacks. In February, Hewlett
Packard Enterprise Co. acquired startup Niara, which uses advanced
analytics including machine learning to determine anomalies in
network traffic.
--Robert McMillan contributed to this article.
Write to Rachael King at rachael.king@wsj.com
(END) Dow Jones Newswires
June 20, 2017 14:14 ET (18:14 GMT)
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