Last month's announcement of the strategic partnership between Cisco (Nasdaq: CSCO ) and cloud technology provider VMware (NYSE: VMW ) was the latest confirmation of Cisco's shift in business philosophy. CEO John Chambers' objective to become a leader in the exploding cloud marketplace should be sweet music to Cisco shareholders' ears. The 6% jump in share price year to date, along with the recent dividend payment, sounds pretty good, too.
Cloud technology concerns
The newest additions to Cisco's existing cloud solutions -- SecureX, data loss prevention, and secure mobile services -- addresses areas of concern for many businesses slow to embrace cloud computing.
One of the primary roadblocks to adopting cloud technologies is security -- security of data housing and storage, along with the transmitting of sensitive data, especially via mobile computing options. Another problem with the cloud, particularly for small- and mid-sized businesses, is the cost to customize infrastructure and architectures.
At the recent cloud-related industry event, VMworld, Cisco and fellow networking leader EMC (NYSE: EMC ) got to talking. Turns out the discussions involved the viability of combining EMC's current virtual and architectural cloud tools, along with Cisco's existing services and client base.
The two companies made the partnership official by announcing a joint, three-pronged approach to providing businesses with cloud solutions. The three aspects of the combined effort include customizable infrastructure, supporting mobile connectivity, and validation systems designed for mid-and small-market companies.
The objective of the Cisco-EMC partnership is the same as the previously announced alliance with VMware -- compete with cloud technology behemoths IBM (NYSE: IBM ) and Microsoft (Nasdaq: MSFT ) . Both IBM and Microsoft got on board the cloud early, and their (respective) efforts to take leadership positions in the market are working.
On the security front, Cisco has new services and enhancements on the horizon. Cisco began shipping the ASA 1000V cloud firewall last month, and is nearly ready to introduce a couple of significant additions to the lineup. The Nexus 1100 is specific to virtual security, and the IPS4500, ASA 9.0 application, along with the ASA 1000V, all address concerns surrounding securing data centers.
On the encryption front, Cisco's next-generation encryption technologies will heighten the safety of digital signatures, establishing security keys and authentication tools.
Aligning Cisco's cloud-related services and products today is going to pay off big for shareholders in the mid-to-long term. How big? Depending on who you listen to, the market for cloud computing could be as high as $270 billion by the year 2020 ($241 billion if you prefer Forrester Research data over Market Research Media). In just two year's time (according to Forrester), the cloud will account for $55 billion in revenue per year.
When you consider Cisco ended its last fiscal quarter with $46 billion in total annual revenue, the potential for Cisco is staggering.
Cisco's cloud-related strategic alliances, its existing client base, and a market that is growing by leaps and bounds, all bode well for Cisco investors. Add to this a stock that is one of the cheapest in the sector on a fundamental basis -- relative P/E, operating margin, and profit margin are all stellar -- along with a nearly 3% dividend yield, and Cisco deserves your serious attention.
Microsoft goes hand-in-hand with Cisco in a lot of ways. Both fully appreciate the potential cloud computing presents, yet remain fantastic values. Microsoft's 2.5% dividend yield is nothing to sneeze at, either. For a comprehensive analysis of the risk and reward opportunities Microsoft offers, make sure to grab our special premium report. It comes with a year of updates included at no extra cost to you. Just click here to get started.