Cisco is facing record-breaking customer demand and software and product order backlog, despite two major unexpected events that took place during the company’s third fiscal quarter, said Cisco Chairman and CEO Chuck Robbins during the company’s earnings call on Wednesday.
Cisco in March stopped business operations in Russia and Belarus for the foreseeable future, which brought about a negative impact to revenue of approximately $200 million in the quarter. Later that month, new COVID-19-related lockdowns in China exacerbated the ongoing supply chain and component constraints.
“While the quarter clearly didn’t play out exactly as expected, demand remains solid and the fundamentals of our business remains strong,” Robbins said.
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The company’s stock fell more than 13 percent in after-hours trading on Wednesday evening as the networking giant reported flat revenue growth for the quarter and said it was forecasting revenue declines for its next quarter.
Cisco’s product order growth was up 8 percent year over year following three consecutive quarters of more than 30 percent order growth. While still an increase, Cisco attributed the single-digit increase to a slightly shorter Q3 2022 — the third quarter of the company’s fiscal 2022 had 13 weeks compared with 14 weeks in the third quarter of fiscal 2021, as well as to Russia’s invasion of Ukraine.https://c65113e16d5a2f3f8a3f39ece7f8340b.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
Robbins said that despite macro pressures, Cisco continues to make progress on its business transformation to software and subscriptions. The company’s total annual recurring revenue (ARR) was up 11 percent year-over-year, to $21.9 billion, which fueled an all-time high backlog of well over $15 billion, up 10 percent sequentially and up 130 percent year over year. Cisco’s software backlog is up 10 percent sequentially, growing 80 percent year over year. Product ARR growth climbed 18 percent compared to Q3 2021.
Total software revenue was $3.7 billion during Cisco’s fiscal Q2 2022, a decrease 3 percent year over year, which would have been 5 points higher if not for the shorter fiscal third quarter and the War on Ukraine, according to Cisco. Subscription revenue was $5.5 billion during the quarter, a decrease of 5.5 percent for the same reasons. During Cisco’s fiscal second quarter, 83 percent of its software revenue was subscription-based, up 1 percentage point from last year’s Q3 result.
Robbins said that it has more that $2 billion in software backlog because that software is connected to a piece of hardware. That revenue can’t be recognized until the hardware ships. Once the supply chain challenges start to clear, the company expects normalized software growth rates that will be driven by renewals in fiscal year 2023 and subscription-based enterprise wireless and data center networking offerings.
Cisco’s product revenue climbed 13 percent year over year and service revenue grew 3 percent during the third quarter.
“This momentum reaffirms the critical role we play in our customer’s futures,” Robbins said. “The technology that [customers] are adopting from Cisco is driving their agility, allowing them to move at greater speeds, and allowing them to deliver differentiated experience for their customers.”
Cisco’s End-To-End Security segment posted 7 percent growth during third quarter of 2022 to $938 million, which Cisco CFO R. Scott Herren said was driven by strength in the company’s zero-trust portfolio.
The company’s Hybrid Work portfolio, which is now referred to as the “Collaboration” segment, declined 7 percent year over year to $1.13 billion in revenue in Q3 2022, which Herren attributed to declines in contact center and calling offerings.
Cisco’s former Infrastructure segment, now called the Secure, Agile Networks segment, which includes the core switching and routing businesses, posted revenues of $5.87 billion during the quarter, a 4 percent raise compared to Q3 2021’s result. The Secure, Agile Networks segment success was driven by demand for switching, wireless and SD-WAN solutions, Herren said.
Cisco’s Internet for the Future segment, which includes the company’s telecommunications, cloud, and optical networking products, posted 6 percent growth year over year, with revenues of $1.32 billion. Cisco’s Webscale businesses posted order growth of 50 percent, according to the company. “We’re taking share in Webscale,” Robbins added.
For fiscal Q3 2022 which ended April 30, Cisco’s revenue stayed relatively flat at $12.83 billion compared to $12.80 in the year-ago quarter. Cisco posted non-GAAP earnings per share of 87 cents, up 5 percent year over year compared to 83 cents a year ago and net income of $3.6 billion in Q3 2022, an increase of 3 percent. The company’s earnings missed Wall Street’s predictions of revenues of $13.37 billion for the quarter.
Cisco expects revenue to decline between one and five percent next quarter.RELATED TOPICS:
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