Cisco Reports Slumping Services Revenue, Cites War in Ukraine

Cisco Systems cited the invasion of Ukraine as a factor in its flat quarterly revenue.

The networking giant had $12.8 billion in revenue in its fiscal year third-quarter. That number did not change from a year ago. Cisco’s net income totaled $3 billion. Product revenues increased from $9.14 billion to $9.45 billion, while service revenues decreased 8% from $3.66 billion to $3.39 billion.

“We delivered healthy earnings despite unanticipated disruptions through strong pricing and disciplined spend management,” Cisco chief financial officer Scott Herren said in a news release. “Our product backlog is well over $15 billion and product ARR and RPO again grew double digits. The continued progress in our business model transformation reflects the success of our strategy and underpins our long-term confidence.”

International Conflict

Cisco in March stopped its business operations in Russia and Belarus, citing Russia’s invasion of Ukraine. The decision cost the company about $200 million in quarterly revenue, according to the earnings release. According to Cisco, Russia, Belarus and Ukraine accounted for about 1% of the company’s typical revenue.

“We continued to see solid demand for our technologies and our business transformation is progressing well,” said Chuck Robbins, chair and CEO of Cisco. “While Covid lockdowns in China and the war in Ukraine impacted our revenue in the quarter, the fundamental drivers across our business are strong and we remain confident in the long term.”

$CSCO reports Q3 FY23 numbers… a healthy quarter coming in at $12.8B. A strong number considering backlog is now over $15B, up 130% YoY.
Russia, supply chain, covid bit @Cisco in an otherwise strong quarter. @ChuckRobbins @mirageas @BrennaNoD https://t.co/SxuWmfJOpn

— Zeus Kerravala (@zkerravala) May 18, 2022

Cisco saw 4% year-over-year revenue growth for its Secure, Agile Networks business and a 6% increase for its Internet for the Future business. End-to-End Security (7%) and Optimized Application Experiences (8%) also grew.

Cisco’s collaboration portfolio was 6% lower in revenue than a year ago. However, the portfolio appears to have grown slightly compared to the previous quarter ($1.07 billion to $1.13). It remains to be seen how the provider’s expansion of its Webex go-to-market strategy to include agents will impact growth.

Cisco posted a guidance of -1% to -5.5% year-over-year Q4 revenue decline.

“While the topline is disappointing, we have navigated this complex year and actually will deliver solid EPS when we’re done,” Robbins told investors. “The fundamentals are strong a lot, still in our favor. Demand, business transformation is working, the technology transitions and the number that we’re participating in. We have great teams around the world and that leads me to have a high degree of confidence despite the short-term challenges that we face.”

Read updates from Cisco partner executives, who spoke about trends with the company’s MSP, VAR and agent partners.