Cisco Bets On Security To Revive Fortunes -- WSJ

By Rachael King Features Dow Jones Newswires

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.

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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.

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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.

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 21, 2017 02:47 ET (06:47 GMT)