Cisco Secure Networks Revenue Grows 22 Percent In ‘Milestone’ FY 23 As Record Backlog Clears

The tech giant’s Secure, Agile Networks segment, which includes the core switching and routing businesses, posted impressive revenues that climbed 33 percent during its final fiscal quarter of 2023. Cisco expects to double-down on AI, cloud, and security in FY 2024.

Cisco Systems has entered a brand-new fiscal year with its sights set on AI, cloud and security as its expected revenue drivers, but the company is currently seeing substantial traction and market share gains within its bread-and-butter enterprise networking portfolio, according to the tech giant’s executives.

Cisco’s “milestone” 2023 fiscal year saw the company make strides in its business transformation away from hardware, especially as the global supply chain loosened to make it possible for Cisco to chip away at its product order backlog, according to Cisco Chairman and CEO Chuck Robbins.

San Jose, Calif.-based Cisco’s progress in favor of software and subscriptions led to its total annual recurring revenue (ARR) climbing 10 percent for the full 2023 fiscal year and 5 percent during the fourth fiscal quarter of 2023 to $24.3 billion. Total software revenue grew 17 percent and software subscription revenue rose 20 percent year over year and 85 percent of software sales were subscription-based, Robbins told investors during the company’s fiscal Q4 2023 and full year earnings call on Wednesday evening.

“Cisco is committed to helping their customers navigate this transition in a trusted and responsible way … I’ve never seen such consistency around the [IT] priorities in virtually every customer around the world and their portfolio lines up nicely against the key things that their customers are trying to achieve,” Robbins said.

[Related: Cisco To Buy Cloud-Native Mobile Core Developer Working Group Two For $150M ]

During its fourth and final fiscal quarter 2023, Cisco’s Secure, Agile Networks segment, which includes the core switching and routing businesses, posted impressive revenues of $8.13 billion during the quarter, a whopping 33 percent incline compared to Q4 2022’s result. The segment increased 22 percent during the full 2023 fiscal year after being significantly affected by supply chain constraints in earlier quarters. This quarter, however, the segment was buoyed by strength in the company’s popular Catalyst and Meraki product lines, said Cisco CFO R. Scott Herren.

Cisco’s Catalyst line can now be managed via the Meraki dashboard, one of Cisco’s more popular portfolio updates announced last year that Robbins said had been “really well received” by customers in FY 2023.

Cisco’s product revenues, which was led by the Secure, Agile Networks segment, climbed 20 percent and service revenues increased by 4 percent during Q2 2023, said Herren. For the full fiscal year, product revenues climbed 13 percent and services revenues increased 2 percent.

Herren said that the company was able to draw down its once record-breaking backlog and got more products into the hands of customers. He said that Cisco expects much of the excess backlog to ship out in the first fiscal quarter of 2024. Lead times for products for customers and partners are also expected to be normalized by the end of the first half of fiscal 2024, Herren added.

Cisco’s End-To-End Security segment stayed flat quarter over quarter with revenues of $987 million. The segment increased by 4 percent for the full year, which Herren attributed to strength in the company’s unified approach to security management and its platform play.

The tech giant closed three acquisitions during the fourth quarter, including privately held cloud security software company Lightspin Technologies; Armorblox, a company that has pioneered the use of large language models (LLMs) and natural language understanding in cybersecurity; and Smartlook, a provider of qualitative analytics for websites and mobile apps, to boost Cisco AppDynamics’ Digital Experience Monitoring (DEM).

Cisco’s struggling Collaboration segment continued to decline, falling 12 percent year over year to $1.02 billion in revenue compared to Q4 2022, which the company attributed to declines in Meetings, slightly offset by growth in Calling and Contact Center. The segment declined 9 percent during the full 2023 fiscal year.

Cisco’s Internet for the Future segment, which includes the company’s telecommunications, cloud, and optical networking products, climbed 1 percent during the full year and 3 percent year over year in Q4 with revenues of $1.299 billion. Cisco’s Webscale business, according to Herren, saw double-digit growth during the final fiscal quarter.

For Cisco’s fiscal Q4 2023, which ended July 30, revenue climbed 16 percent to $15.20 billion compared to the same period a year ago. Cisco posted non-GAAP earnings per share of $1.14 cents, a 37 percent increase compared to a year ago and non-GAAP net income of $4.68 billion in the fourth fiscal quarter of the year.

For the full fiscal 2022-year, Cisco reported revenue of $57.0 billion, up 11 percent compared to fiscal 2022. Non-GAAP earnings per share increased 16 percent year over year for fiscal 2023. Robbins said that FY 2023’s revenue increase of 11 percent was the company’s highest growth rate in more than a decade.

Cisco’s stock was up 2 percent in after-hours trading Wednesday to $54.04 per share following Q4 results that topped Wall Street’s estimates, but the company issued modest product growth guidance for fiscal year 2024.

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 gnarcisi@thechannelcompany.com.

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Cisco is getting 'early wins' in AI, says CEO Chuck Robbins

Cisco Systems (CSCO) reported fiscal fourth quarter results that beat analyst estimates, but the company's outlook was cautious. In an interview with Yahoo Finance Live, Cisco Systems CEO Chuck Robbins says the the company benefited from a more "diverse book of business" than its rivals and some supply chain challenges starting to ease. On the economy, Robbins says "it's clearly mixed," with some industries, like financial services and transportation, showing strength.

When it comes to AI, Robbins says the company is getting some "early wins with some of this next generation ethernet." Robbins says the company provides the networking equipment that connect the "brains" behind the AI systems. He adds that the company will see some benefit in its 2024 fiscal year, but "we think the real move to this new technology" will be in fiscal 2025. Robbins add that he thinks "the opportunity over the next 5,6,7 years could be three times what the original cloud buildout was."

BRIAN SOZZI: Cisco 2.0 looks to be unfolding in front of investors. Tech giant beat big on the top and bottom lines as it continues to ramp up and focus on artificial intelligence and also supply more money back to shareholders. Joining me right now is Cisco chairman and CEO Chuck Robbins. Chuck, nice to see you.

CHUCK ROBBINS: Nice to see you, Brian. Thanks for having me.

BRIAN SOZZI: So, coming into this quarter, I think there was a lot of pessimism on what you would report. Some company, I would say called Juniper, I think sparked a lot of worry in the marketplace, but I didn't really see that in your results. Sales up-- product sales up 20%, service revenue up 4%. What did the market get wrong?

CHUCK ROBBINS: Well, I think the primary difference between some of their peers is that they have a higher concentration or a higher exposure to the service provider segment, which was weak for us as well. But they have a much more diverse book of business. And so the enterprise and public sector, and commercial all offset it. But look, it was one quarter. Teams did a great job. They were really happy with how they executed. But still a lot of dynamics out there.

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BRIAN SOZZI: And the margins in your business up pretty significantly as well. Is that just inflation coming down, and you benefiting from that?

CHUCK ROBBINS: Well, a lot of it is-- a lot of the costs that they incurred with the supply chain challenges have subsided a bit. But it's also just the teams do a great job. Their supply chain team and their engineering teams do a great job on just continuing to find efficiencies in how they build their products.

BRIAN SOZZI: This is a strange time in the economy. And look, I mean, today they have Walmart coming out here saying more people making over 100 grand are shopping it stores. Who would have thought. It's Walmart. What's your read on the economy here? Make sense of it for us.

CHUCK ROBBINS: Well, I'm not sure I can make sense of it for you. But I think it's clearly mixed. I mean, we-- as I said, they saw improvement in their commercial, which is sort of the mid-market down, they saw improvement in their enterprise business, and public sector was pretty steady, but service provider was very weak.

And I think there's industries that are doing OK. They saw financial services, transportation was strong. But I think it's just a little mixed and just a lot of dynamics that we're watching on a very regular basis.

BRIAN SOZZI: What are you most concerned about as they go into the back half of the year from an economic standpoint?

CHUCK ROBBINS: Well, first of all, I think that technology has become so core to how organizations run. This is not an optional thing, it's not a cost center, it's not some underlying ERP system anymore, it's deep in the heart of the strategy of these organizations. So there's not as much likelihood that you just completely stop spending on technology. Most of their customers will say that's the last thing we'll stop spending on right now.

They're being more thoughtful about which projects are being funded, which ones are the most important, and which ones that they're going to focus on. But as they look to the second half of the year, I think obviously getting inflation under control will be really important, geopolitical dynamics around the world are very important. And hopefully, they will see inflation continue to subside over the next few months.

BRIAN SOZZI: What's your read on the China economy? I think markets are really under pressure right now because of a China economic slowdown. You have exposure there, are you seeing that?

CHUCK ROBBINS: Well, they are very lightly exposed to China. It's less than 2% of their business. So it's not a significant part. But clearly, it seems to not be coming back online as fast as everyone expected them to. And I think that they'll continue to work the policy, they lowered their rates, which was interesting. And I know that the economic growth in China is one of the most important subjects for the leadership there. So I expect they'll continue to make whatever moves they need to make.

BRIAN SOZZI: Do you think we'll see, or are you seeing any signs of a contagion? China's slowing down. We're going to get that here in the US.

CHUCK ROBBINS: Not at this point. In fact, they saw improvement sequentially in the US. Again it was one quarter, but they saw improvement.

BRIAN SOZZI: In terms of sequential improvements, you did call it out in the earnings call, where are you seeing customers come back little quicker than you thought?

CHUCK ROBBINS: Well, the enterprise in the United States, their large enterprise customers, particularly financial services, it was their largest enterprise software agreement quarter in the history of the company. So big customers making big commitments. And didn't hear a lot of, well, I think we're just going to push that off a bit.

I mean, when you think about the need to invest in cybersecurity, the need to invest in this whole technology re-architecture for this multi-cloud world they live in, everybody's rebuilding applications and needs observability and insights that they can provide to them. Everybody's trying to solve this hybrid work problem, and everybody's focused now on leveraging technology for sustainability. So I mean, every customer. And so we're just fortunate there are a lot of things that they have a role to play in.

BRIAN SOZZI: When does Cisco start cleaning up on AI?

CHUCK ROBBINS: Well, it's important to understand the genuine technology. And these GPUs, which you're the brains in these AI networks, they have to be connected. And what we-- there's a technology that has existed for a while that is currently connecting those. And they build obviously ethernet infrastructure which is what the cloud providers want to move to. And so we're getting some early wins with some of this next-generation ethernet. And-- but they think that FY 24, which we're just starting, we'll see some benefit, but they think the real move to this new technology for connecting these GPUs will be in fiscal '25.

BRIAN SOZZI: Was that-- so you've incurred a $500 million in the most exact quarter from AI-related what chips Silicon One is it called.

CHUCK ROBBINS: They said we've booked-- we've taken $500 million in orders to date. It wasn't all in that quarter. It's actually systems that are connecting these AI processors, basically. So we-- they have to be connected at the end of the day. And so they actually provide the networking equipment underneath. And they think that the opportunity over the next five, six, seven years could be three times what the original Cloud Build out was.

BRIAN SOZZI: Can you make enough of this technology? I think all the stories right now are what you look at in what Nvidia is doing. They're leading in many respects these AI chips, but they can't make enough of them. Can you make enough products to service the demand you're seeing?

CHUCK ROBBINS: Absolutely.

BRIAN SOZZI: All right fair enough. Now, in addition to AI, you're also-- sound a little different in terms of capital commitment. Returning more cash to shareholders, why that shift in tone?

CHUCK ROBBINS: Well, we've been talking to a lot of their shareholders. They talk to them quite regularly, obviously. And it just became apparent that what they really wanted to see was they wanted to see more consistency and a higher level of buybacks, which they have the balance sheet and the cash to do. And they wanted to see operating leverage. They wanted to see earnings per share grow faster than revenue.

And ironically, we've been doing both of those things for the last-- they had leverage in the model growing EPS faster for the last couple of years. And they had increased and gotten very consistent with their buyback, but they had never declared that as a permanent strategy. So really, what they did yesterday is they told them that this is their strategy going forward, and you should expect it from us in the future.

BRIAN SOZZI: Does a commitment like that mean Cisco is out of the big M&A game?

CHUCK ROBBINS: No, they have plenty of-- they have a strong balance sheet. They have a lot of flexibility.

BRIAN SOZZI: Lastly, the Webex business under a little pressure as people, I guess, go back into the office and do their thing. What's your commitment to that business? And then, more broadly, on the return to office, where do you stand? Do you want to see your employees back in the office?

CHUCK ROBBINS: So, first of all, in their collaboration portfolio, the teams have done an amazing job. Most every customer right now is transitioning to cloud-based calling. And so their teams have shifted and are leading with cloud-based calling and collabora-- and the meetings portion of it is part of the suite that they get to do that.

So actually, meetings orders last quarter were up double digits. It was actually quite positive. And the overall portfolio was up significantly. Their cloud contact center, which is also part of that, which is customer experience being delivered from the cloud, was up triple digits. And so we're very committed to that business.

As it relates to hybrid work, what we've told their teams is that they let the team decide how frequently and how valuable is it for you to be in the office together, and then they make that call. But they see a slight increase as employees are starting to want to come back to the office. And their general belief is that we're changing all their offices because they want them to be a magnet and not a mandate, and they want people to want to come back.

BRIAN SOZZI: Do you see your productivity go up as people get back in the office?

CHUCK ROBBINS: They just had a record year. So I think, I mean-- but you got to remember, they were in this mode to some extent before the pandemic. 70 plus percent of their first-line managers have at least one remote employee already. They already had 12% to 14% of their employees that worked from home full-time. Based on the job they were doing was fine to work from home. So this was not a radical new thing for us it's just a little more broad-based than it was before the pandemic.

BRIAN SOZZI: All right. Let's leave it there. I know it's busy post-earnings day for you.

CHUCK ROBBINS: Yes.

BRIAN SOZZI: Cisco chairman and CEO Chuck Robbins. Always nice to see you. Thanks for coming down.

CHUCK ROBBINS: Thanks, Brian.

BRIAN SOZZI: Appreciate it.