Cisco opens up about its hybrid model and acquisition strategy

Cisco’s financial disclosures for its Q1 and Q2 FY25 painted a compelling picture of growth in its security segment. While the figures showcased a revenue increase of 100% in Q1 and 117% in Q2, they largely reflected the significant impact of the Splunk acquisition, which closed in March 2024. This growth trajectory prompts a crucial inquiry for stakeholders: How much of Cisco’s future security growth is projected to be organic versus acquisition-driven, and what are the pivotal organic growth initiatives Cisco is actively pursuing to ensure sustainable, non-acquisition-dependent expansion?

Speaking to Dataquest at a Media roundtable on 9 July, Jeetu Patel, Chief Product Officer of Cisco, articulated, “Our strategy is never about acquisition. The strategy is always about having a very clear vision. And in our security vision, we want to make sure that we are an integrated platform that’s fused into the fabric of the network, that is AI-first in the way that we think about it.”

Adding to this, Chuck Robbins, CEO of Cisco, reinforced the opportunistic yet strategic approach to mergers and acquisitions: “If an acquisition comes along that we think we need to make sure gets augmented, that can accelerate our growth, we won’t be shy to deploy the balance sheet. But that’s not part of the strategy. The strategy is to build great products, and that is what we are focusing on, and we will be taking such acquisition opportunities that come up ahead.”

If analysed carefully, the core of Splunk’s contribution to Cisco’s growth lies in its ability to offer a more comprehensive security and observability platform. It can attract new customers who require integrated solutions. The unified data insights and enhanced capabilities brought by Splunk make Cisco’s existing security products more compelling.

Thus, while Splunk immediately bolsters reported revenue through inorganic means, its strategic imperative is to act as a powerful engine for accelerated organic growth across Cisco’s broader security and observability ecosystem. The underlying healthy organic product order growth (9% in Q1 FY25 and 11% in Q2 FY25, excluding Splunk) suggests a robust foundation, even before the full synergistic benefits are entirely realised.

A distinctive organic growth driver for Cisco is its unique capability to embed security directly into its core networking infrastructure, transforming security from an additive layer into an inherent feature. As Chuck Robbins noted concerning new product sales, "Probably 100% of these new products, or 95% of them, are basically software solutions that are sold, yes, and recognized over time. Revenues recognized over time. So the order growth rate was here, and the revenue, in fact, still lags that, because you are getting the month, the month, the month. So it's just going to take time for that volume to catch up." This indicates a strong pipeline of software-driven security inherent in networking.

In conclusion, Cisco's future security growth is poised to leverage a sophisticated hybrid model. Strategic acquisitions, with Splunk as the prime example, serve as powerful catalysts, expanding Cisco's market reach, enriching its data insights, and broadening its capability footprint. However, the subsequent and arguably more critical phase involves accelerated organic growth. This is driven by the tight, intelligent integration of these acquired assets with Cisco's extensive existing portfolio, coupled with continuous internal innovation in AI-powered, platform-centric, and network-embedded security solutions.

As Chuck Robbins succinctly put it, "Security is a strategic area. We're going to be in this for the long run. We're going to continue to keep investing. We're going to continue to keep building new products." This commitment, coupled with the inherent lag in revenue recognition for software-heavy new products, suggests that while the inorganic boost from Splunk is significant, a substantial and sustainable wave of organic growth from Cisco's next-gen security portfolio is still unfolding.