Despite expected revenue declines for the final fiscal quarter of the year triggered by supply chain challenges, Cisco Systems reported record revenues and product backlog for the full 2022 year with its security segment returning to double-digit growth.
The San Jose, Calif. tech giant in May revealed that its backlog was at an all-time high of well over $15 billion, up a whopping 130 percent year over year. The company didn’t disclose numbers for this quarter, but said it once again had triple-digit backlog growth that fueled the backlog to the highest level ever recorded in the company’s history, said Cisco Chairman and CEO Chuck Robbins during the company’s earnings call on Wednesday.
Cisco’s executives said that the firm started to see an easing of supply chain constraints toward the end of its fourth fiscal quarter that is helping Cisco work through some of its massive backlog, but an improving supply chain doesn’t mean this massive headwind will simply go away, warned Cisco CFO R. Scott Herren.
“We’re not demand-constrained, we’re supply constrained in fiscal 2023. If we could get more supply, we’d be growing more quickly. I think we’ll continue to face component availability headwinds throughout the year,” Herren said.
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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 8 percent year-over-year, to $22.9 billion, which fueled the record full-year of product orders and backlog.
“We continue to see strong customer adoption of our software and subscriptions driven by the targeted investment’s we’ve been making,” Robbins said. “These important metrics illustrate the increasing recurring nature of our revenue streams. This combined with our record backlog provides us with enhanced visibility into our business moving forward.”
Cisco’s product revenues climbed 6 percent and service revenue declined 1 percent during Q4 2022 due to supply chain pressures, which were a substantial barrier to software and services growth during the quarter, Cisco said. “We expect to see an improvement in software, subscriptions, and services that are attached to hardware products in our backlog,” Robbins said.
Cisco’s End-To-End Security segment posted an impressive 20 percent growth during the fourth quarter to $984 million and 9 percent overall growth for the year. Cisco CFO R. Scott Herren said the segment’s “record” growth was driven by strength in the company’s zero-trust portfolio.
Robbins added that the most recent fiscal quarter saw some backlog movement in the firewall space, which helped to give the security segment a boost. “We had a really solid quarter-with strengths in endpoints and zero-trust. [security] is the number one investment area for the company this year,” he said.
The company’s Hybrid Work portfolio, which is now referred to as the “Collaboration” segment, climbed 2 percent year over year to $1.16 billion in revenue in Q4 2022, which Herren attributed to some backlog clearing out when more devices were delivered during the quarter, which offset declines in Meetings and Calling.
Cisco’s Secure, Agile Networks segment, which includes the core switching and routing businesses, posted revenues of $6.09 billion during the quarter, a 1 percent decline compared to Q4 2021’s result. The Secure, Agile Networks segment was impacted by supply chain constraints, Herren said.
Cisco’s Internet for the Future segment, which includes the company’s telecommunications, cloud, and optical networking products, declined 10 percent year over year with revenues of $1.26 billion. Cisco’s Webscale businesses, on the other hand, posted order growth of 50 percent, according to the company.
For fiscal Q4 2022 which ended July 30, Cisco’s revenue stayed relatively flat at $13.1 billion compared to the same period a year ago. Cisco posted non-GAAP earnings per share of 83 cents, a decline of 1 percent year over year compared to 84 cents a year ago and net income of $3.4 billion in Q4 2022, a decrease of 3 percent. The company’s earnings beat Wall Street’s predictions of revenues of $12.78 billion, which investors lowered in May when Cisco predicted declines of between 1 and 5 percent.
For the full fiscal 2022 year, Cisco reported revenue of $51.6 billion, up 3 percent compared to fiscal 2021. Non-GAAP earnings per share increased 4 percent year over year for fiscal 2022 and net income for the year climbed 12 percent to $11.8 billion.
“We had a strong end to our fiscal year in the midst of an incredibility dynamic environment,” Robbins told investors.
Cisco stock was up more than 4 percent in after-hours trading Wednesday to $48.71.LEARN MORE: Wireless | Routers and Switches | Cloud Infrastructure | Cybersecurity
Gina Narcisi is a senior editor covering the networking and telecom markets for CRN.com. Prior to joining CRN, she covered the networking, unified communications and cloud space for TechTarget. She can be reached at [email protected].
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