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Man pointing to graph showing revenue decline

Cisco Fiscal Quarter Revenue Down, But Transformation Objectives Hold

  • Written by Lynn Haber
  • August 13, 2020
Cisco saw product revenue declines in the Americas, EMEA and APJ.

Cisco this week reported quarterly revenue of $12.2 billion, down 9% from the same quarter a year ago. However, earnings per share were up 22% in its fiscal fourth quarter.

In keeping with its targets to generate 30% of revenue from software sales – as per the company’s transformation strategy announced in 2017 – 29% of revenue came from software in Cisco’s 2020 fiscal year, which ended July 25. In its fiscal fourth quarter, that number was higher (31%), More than half (51%) of Cisco revenue for the fiscal year came from software and services.

What’s more, today, 78% of Cisco revenue is sold via subscription — beating its target of 66%.

Cisco's Kelly Kramer

Cisco’s Kelly Kramer

“We executed well in [the fourth quarter], delivering strong margins despite the very challenging environment,” said Kelly Kramer, CFO Cisco CFO. “Software subscriptions now make up 78% of our software revenue and remaining performance obligations continued to grow strongly in the quarter, reflecting the strength of our portfolio of software and services. We are seeing the returns on our investments in innovation as we focus on delivering long term growth and shareholder value.”

Kramer, with Cisco since 2012, is retiring. She will leave after helping to find her replacement.

Cisco chairman and CEO Chuck Robbins talked about the company’s ability to change.

“If the past year has taught us anything, it’s the need to always be nimble,” he said on the company’s earnings call. “I believe that the changes we made to our business put us in a position of strength as we focus on our future.”

Pandemic Impact

Cisco's Chuck Robbins

Cisco’s Chuck Robbins

He noted that the pandemic has had the greatest impact on Cisco’s commercial and enterprise orders driven by an overall slowdown in spending, as reflected in the Cisco fiscal quarter numbers. Business customers have delayed purchasing decisions in some areas and increased them in others.

Here’s a closer look at the ups and downs in the Cisco portfolio from its fiscal fourth quarter:

Product revenue was down 13%, but security was a bright spot (up 10%). Services revenue was flat. Infrastructure platforms were down 16% and applications were down 9%.

By geography, product revenue was down across the board: Americas (-12%); EMEA (-6%); APJC (-7%).

According to Robbins, the shift to work-from-home increased demand for Catalyst 9000, security, WebEx and other SaaS solutions. Cisco saw double-digit revenue growth in both WebEx and its security portfolio for the quarter.

“As more data goes to the cloud and more users are more distributed, we have good momentum in our cloud security solutions protecting workloads, applications and data,” said Robbins.

Looking Ahead

Cisco expects revenue this quarter (Q1 2021) to continue to decline — as much as 11%. Its acquisition of ThousandEyes closed last week.

Robbins said that over the next few quarters, the company will take out more than $1 billion to reduce the its cost structure. The company also will rebalance its R&D investments to focus on key areas. For example, expect to see an acceleration of Cisco’s portfolio to be delivered as a service.

Here are some other areas for accelerated investment: cloud security; cloud collaboration; key enhancements for health care, education and other industries; increased automation in the enterprise; the future of work; and application insights and analytics.

“At the same time, we’ll continue our focus on the following areas, many of which have been accelerated by the pandemic – multi cloud investment, 5G, WiFi 6, 400 gig, optical networking, next generation silicon and AI, and more,” said Robbins.

Tags: MSPs VARs/SIs Analytics Artificial Intelligence Cloud Data Centers Digital Transformation EMEA Leadership Networking Sales & Marketing Security Strategy

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