Cisco Systems has exceeded its goal of generating 30 percent of its revenue from software and is on-track for subscriptions to make up half of its revenue by fiscal year 2025.
“Cisco is one of the biggest software companies in the world and I don’t think anyone thinks of Cisco in those terms,” Scott Herren, Cisco’s CFO, said during the company’s Investor Day Wednesday.
More impressive, said Cisco CEO Chuck Robbins, was that when he took the helm in 2015, the company had pulled in $3.4 billion in subscription software revenue. That’s compared to fiscal year 2021 (ended July 31, 2021), in which Cisco had nearly $12 billion in subscription software revenue – a 23 percent compound annual growth rate.
“We’ve delivered on what we said we’re going to deliver from when I started as CEO. We now have one of the largest software businesses in the world combined with a world-class part of our business that we’re building right now,” Robbins told press and analysts. ”We got some work to do in certain areas. … But I’m really confident in the future.”
Software accounted for 29 percent of revenue in Cisco’s fiscal 2020 while subscription revenue that fiscal year represented 74 percent of software revenue, beating the company’s target of 66 percent that it set in 2017 at its last Investor Day.
In the recently completed fiscal 2021, 31 percent of revenue came from software and subscriptions accounted for 79 percent of software revenue. Software and service revenue also exceeded Cisco’s target of 50 percent of total revenue, hitting 53 percent by the end of fiscal 2021.
Cisco’s executive leadership team said that between 2021 and 2025, product subscription revenue is set to grow the most at 15 percent to 17 percent CAGR. Product non-subscription revenue, on the other hand, is only expected to increase between 2 percent and 4 percent.
As Cisco’s subscription business grows, so does its predictable revenue, said Liz Centoni, senior vice president and general manager of Cisco’s applications business.
“Every part from Cisco’s portfolio – not just software – is [or] will be available as a service if our customers want to consume it that way,” she said.
New and emerging markets that Cisco is entering, such as 5G, IoT, and hybrid cloud, are also aligned with Cisco‘s everything as a service strategy, Centoni said.
“These new markets … will help us reinforce our leadership in IT networking and security, and extend our reach to new users and buying centres like application developers and cloud and digital teams.”