Cisco has been executing a multi-year transformation, shifting from a hardware-centric business centered on switches and routers toward a broader software and services strategy. The goal is to position the company as a central player in cloud computing, security, and AI-driven networking, moving beyond one-time hardware sales to recurring revenue streams.

In its most recent quarterly earnings call, Cisco reported that 49% of total quarterly revenue now comes from subscriptions to software, security, and contract support, rather than from one-time purchases. This marks a significant milestone in a journey that began under former CEO John Chambers and has accelerated under current CEO Chuck Robbins. The company has made dozens of acquisitions—including AppDynamics, ThousandEyes, and most recently Astrix Security—to build out its software and security portfolio.

Cisco’s Platform Ambition

At the core of Cisco’s strategy is the concept of an integrated platform. The company is working to unify its disparate product lines—spanning networking, security, compute, observability, and collaboration—into a single management framework. In June, Cisco unveiled Cloud Control, a unified management plane that promises to give administrators a single pane of glass across their entire infrastructure. This is designed to reduce operational complexity and enable better visibility into traffic flows, security threats, and application performance.

Industry analysts have noted that Cisco’s installed base gives it a unique advantage. With equipment embedded in enterprise data centers, telecom networks, and service provider infrastructure, the company has a vantage point into data traffic that few rivals can match. This visibility allows Cisco to expand into advanced security offerings, particularly as artificial intelligence introduces new challenges around identity management and data governance.

Security and AI Agent Management

One emerging opportunity is identity management for AI agents. While identity tools for human users have existed for decades, managing identities for potentially millions of AI agents represents a largely untapped market. When AI agents interact with enterprise systems, they need to be authenticated, authorized, and audited in the same way human users are. However, traditional identity and access management (IAM) solutions are not designed for non-human entities.

Cisco moved to address this gap in May by announcing plans to acquire Astrix Security for an undisclosed amount. Astrix specializes in identifying, managing, and securing AI agents and non-human identities, such as machine-to-machine connections. The company’s platform discovers all non-human identities across an organization, assesses their risk posture, and enforces policies. This acquisition aligns with Cisco’s broader strategy of embedding security deeper into the network fabric.

Competitive Landscape

Cisco is not alone in pursuing a platformization strategy. Hewlett Packard Enterprise (HPE) has been building its own integrated networking and security portfolio, while Palo Alto Networks is extending its firewall-centric platform into cloud security and SASE. Meanwhile, cloud providers like Amazon Web Services, Microsoft, and Google offer security and identity solutions that are tightly integrated with their own infrastructures. These hyperscalers represent a growing threat, as many enterprises are moving workloads to the public cloud and adopting cloud-native security tools.

Despite this competition, Cisco retains several advantages. Its extensive installed base gives it relationships with IT decision-makers across virtually every industry. The company has also forged deep partnerships with hyperscalers themselves, helping to interconnect their data centers and provide networking equipment for their massive scale. Additionally, Cisco works closely with semiconductor firms to build custom silicon for its switches and routers, a differentiation that competitors find hard to replicate.

Challenges Ahead

Jack Gold, president of J.Gold Associates, notes that Cisco still faces internal integration challenges. “They still have a lot of components that are not fully integrated at their customer sites. That’s why they are trying to build an overarching cloud management console. But it might be problematic for many customers who still have individual components they’ve had in place for years to fully get the overall integration in place, especially if they also have other vendor’s networking products in place,” said Gold.

Some product lines, such as the UCS server business and Webex collaboration platform, have seen slower growth. UCS faces fierce competition from Dell, HPE, and Lenovo in the x86 server market, while Webex battles Zoom, Microsoft Teams, and Google Meet for collaboration market share. However, Cisco has not signaled any intention to divest these businesses, preferring to keep them as part of its broader portfolio.

Looking ahead, Cisco’s ambition is to become more than a hardware provider. The company aims to act as a comprehensive network fabric operator—effectively overseeing and securing the flow of data and AI-driven activity across complex environments. With the rise of edge computing, 5G, and AI workloads, the networking landscape is becoming more distributed and dynamic, and Cisco wants to be at the center of that evolution.

The company is also investing heavily in AI-driven analytics for its observability platform. By applying machine learning to network telemetry, Cisco can help customers predict and prevent outages, optimize application performance, and detect security anomalies in real time. These AI capabilities are being woven into products like Cisco DNA Center, a network controller and analytics platform, and Cisco SecureX, a cloud-native security platform.

Another area of focus is the so-called “AI factory” concept, where enterprises build dedicated infrastructure for training and inferencing large language models. Cisco recently announced a partnership with Nvidia to deliver validated designs for AI networking, using Cisco’s 800G switches and Nvidia’s GPUs. These designs aim to reduce the complexity of building AI clusters, which require ultra-low latency and high-bandwidth connectivity.

In summary, Cisco’s transformation from a hardware company into a software and services powerhouse is well underway. The company is leveraging its installed base, deep networking expertise, and growing security portfolio to capture new opportunities in AI, cloud, and edge computing. While competition remains intense, Cisco’s scale and breadth give it a strong foundation for the next chapter of growth.

Source: Network World News