Cisco Quarterly Results Tease Light at End of Supply Chain Tunnel

Cisco Systems‘ latest quarterly results show that its subscription business is growing, as it continues to battle supply chain challenges.

Cisco’s Chuck Robbins

Cisco posted revenues of $13.1 billion in its fiscal fourth quarter. That matched the quarterly results from Cisco a year ago. However, it beat FactSet’s analyst projection of $12.73 billion. Cisco concluded its fiscal year 2022 with $51.6 billion in revenue. That improved 3% over the previous year.

“We had a strong end to our fiscal year thanks to our Q4 performance. Our teams executed well in the midst of an incredibly dynamic environment, resulting in the highest full year non-GAAP earnings per share in the history of the company,” Cisco chair and CEO Chuck Robbins said.

Supply Chain

Cisco chief financial officer Scott Herren said Cisco exceeded expectations through strong execution and many efforts to reduce supply chain struggles. Cisco recorded a record high for product orders and backlog.

“Our operational discipline is reflected in our healthy operating margin and strong cash flow generation, enabling us to return nearly $4 billion to our shareholders in Q4. And we continue to make good progress in our business model transformation with RPO of over $31 billion, which, coupled with our record backlog, provide us with substantial visibility and confidence in our future revenue.”

Cisco’s Scott Herren

Cisco and its partners have reported significant issues with the supply chain. In addition to delays of up to a year that some products require, costs are going up for Cisco to maintain its supply chain. Cisco executives said freight costs have significantly increased, impacting gross margin. In addition, Robbins said Cisco turned to brokers to expedite hardware to customers, and that came at an increased cost for Cisco.

Cisco in its third-quarter earnings attributed flat revenue growth to macroeconomic trends. Many analysts agreed that supply chain problems, caused partially by the Russian invasion of Ukraine and COVID-19 production shutdowns in China, put Cisco on an uphill climb.

Robbins noted in the earnings call that the backlog showed signs of decreasing in the fourth quarter.

Cisco logged a net income of $2.8 billion, which declined from $3 billion a year ago.

Analyst Perspective

Anurag Agrawal, founder and chief global analyst at Techaisle, said Cisco showed improvement over Q3.

Techaisle’s Anurag Agrawal

“Cisco is back after a slight blip in the previous quarter, still hamstrung by supply-chain issues. Collaboration and security are two big winners; both are among the top IT priorities of commercial and enterprise customers” Agrawal told Channel Futures.

And although Cisco didn’t touch much on partners during its earnings release and analyst call, Agrawal said he sees positive indications for the  channel.

“Commercial segment is doing better within growth in product orders, which speaks to Cisco’s focus on partner programs to drive revenue within the commercial segment,” he said.

Revenue Breakdown

Cisco reported annualized recurring revenue of $22.9 billion in Q4, representing 8% year-over-year growth. Moreover, product-based annual recurring revenue grew 13%. That number bodes well for Cisco’s stated goal of adding more cloud- and subscription-based offerings. Product revenue ticked down slightly from Q4 2021, while service revenue ticked up slightly.

Cisco saw its biggest product revenue growth in security, which grew 20% to $984 million. On the other hand, the vendor’s “Internet for the Future” division declined 10 percent to $1.3 billion. In addition, Cisco’s networking division dropped 1% in revenue to $6.1 billion. Although collaboration declined 5% for the total fiscal year 2022, it scored a 2% quarterly increase in Q4. Cisco’s optimized application experiences grew 8% in Q4 to $185 million.

In addition, Cisco set its Q1 guidance for 2-4% year-over-year growth and its fiscal year 2023 guidance for 4-6% growth.