Cisco AppDynamics Deal Seeks to Boost Ratio of Software Revenue

Cisco Systems’s (NASDAQ:CSCO) decision to acquire software startup AppDynamics for $3.7 billion, nearly double the private-market valuation, reflects Cisco’s struggles in building its software business, according to company financial reports and internal documents. The push by Cisco CEO Chuck Robbins to boost the share of revenues from software stalled in the most recent quarter.
As quoted in the press release:

Executives on its earnings call said 29 percent of Cisco’s $12.4 billion in fiscal first quarter revenues came from recurring software and services. That was barely up from 28 percent in the previous quarter, which was only a slight increase from 25 percent a year earlier.
One of Cisco’s key product lines is dramatically underperforming that software revenue ratio, according to an internal document reviewed by Reuters. Cisco’s N9000 switch uses a mix of hardware and software to route information to data centers. Cisco paid $863 million in 2013 for the technology from a startup named Insieme, hoping to boost software revenue in its networking division.

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