The Six Five team discusses Cisco Q3 Earnings.
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Transcript:
Daniel Newman: Cisco delivered record revenue. It delivered on the high end of earnings, actually above, at $1 a share. They generated tons of cashflow this quarter. They were up 43% at 5.2 billion and returned almost $3 billion to shareholders. So another very well run company. Pat, what I’ve been watching for with Cisco is, look, this is one of those companies that’s on that sort of tipping point between old big iron high value capital expense and getting to more recurring revenue. You and I have had sit downs. We’ve talked to Chuck Robbins, we’ve had talks with their CFO, Scott Herren. And as we’ve gone through these conversations, what we’ve found is that this is a company that’s really aggressively trying to pivot perception. It used to be about selling switches and maintenance contracts. That was the business. Now it’s more software, it’s more recurring revenue, it’s observability, it’s collaboration, it’s security.
So it’s in a lot of businesses and of course it’s in networking. And networking right now is going to be red-hot. And you’re seeing all the impetus on ethernet networking for AI. And Cisco should have a story to tell here. They’ve partnered closely with a number of the semiconductor companies we’ve talked about and obviously they’re building more and more high capacity switching and networking capabilities to handle the traffic of the future. What do they always call internet of the future? That was the Cisco thing.
Pat Moorhead: That is actually a breakout in their P&L, internet for the future. No joke.
Daniel Newman: And it’s up 5%. But where did their growth come from, Pat? Well their growth this quarter came from secure agile networks, 30%. Big, big growth in that category. But the other thing that I’ve been tracking close and I think you have too, has been software growth, subscription growth. 18% software growth, 17% software subscription growth, 11% subscription revenue growth. And their RPO was up too, not bigly but their RPO was up in the quarter. We’re seeing revenue growth globally across the world. So they saw growth in all their major markets this quarter on a quarter over quarter and a year-over-year basis. And I guess the one area that’s been just hard to figure out is how they’re going to manage through the collaboration consolidation. With remote work, they’ve got WebEx. That business, Pat, shrunk 13%. That was probably the one slightly black mark given the fact that we’re going back to this hybrid work.
But they’ve got the hardware, they’ve got the software, they’ve got the platform, they just haven’t been able to seemingly capitalize on it as much as in other areas, Pat. But overall, I’m focused on the subscription revenue and I’m focused on the recurring revenue for this business. They seem to be able to make those pivots. The only other thing I’d say, Pat, is the order book was down. I think it was down about 20%, a little over 20%. And that’s another area that of course people are going to be watching as the RPO was up but the order book was down, does that mean that we have slower quarters ahead, Pat? And I think the guide was pretty conservative but they did raise it.
So despite the order book being down, I think the company still feels it’s got strong RPO enough backlog and enough success in the areas that it’s competing to win long term. So that’s my quick take on Cisco. I had to take a little jog because it was like, what, two weeks ago now, down memory. But it’s good that I’m young and the brain still triggers on a Friday morning.
Pat Moorhead: That’s right. You’re not stuck like me with the crystallized knowledge.
Daniel Newman: Cobwebs.
Pat Moorhead: Yeah, something like that. So no listen, I mean beat, beat, raise, right? And the company is being rewarded in the stock market. And one thing I really love that Chuck does is he has a very strategic point of view. How does he start it off? I mean third paragraph on the call, he goes through long-term growth. And I freaking love that. Because in the end, it is about long-term growth. And if you’re focused on that as a company, you may sometimes get into hot water with investors who are more short-term focused, but your customers love you for it. And Chuck talked about, again, the continuing drumbeat of subscriptions and recurring revenue. 32 billion in RPOs. And RPOs are shorthand for services and anything as a service that you sell.
Also talked about security as an opportunity. And Dan, you and I have talked many times that the security market has really shifted from a best of breed at all costs to simplifying it. And not that those best of breed offerings aren’t best in breed. But if you’re an enterprise and you’re stitching together 10 of these so-called best in breed pieces, what you find is your two or three revs behind and you were no more secure and the chore of stitching it all together can sometimes make you insecure. Cisco Security Cloud is interesting. I call it fabrics, they call it a cloud. Essentially looking at the hybrid multicloud and whether it’s at AWS, on-prem with Cisco having a common fabric for security and networking, I just freaking love.
And then finally, generative AI and the cloud. We talked about chip providers like Marvell and Broadcom taking advantage and having to move the data, moving it between clusters, moving it between racks, moving it between data centers. Everything goes through that Cisco switch at the end of the day. So more data going in. Companies are going to have to up their capabilities. And I think Cisco wins. I’m looking for to a drill-down at Cisco Live. I’m going to be there Monday, Tuesday and Wednesday. Looking forward to it.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
