The Six Five team talk about Cisco’s latest earnings report.
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Transcript:
Patrick Moorhead: So Daniel, let’s move to another earnings. Cisco had their earnings. And let me some of the highlights here. I think the biggest one and this is very similar to what they did the prior quarter. Product orders were up 33%. Product revenue was up 11%. Now it’s interesting a company that wants to lean into services and subscriptions leading with product orders. But I think you lead with what your bi
Overall revenue was up 8%. Gap EPS up 37. Non Gap plus eight. ARR, a good, I would say proxy for services. And as a service up 10%. 20 billion to up to 22 billion. Every regions grew. 13 out of 25 countries grew 25%. All product and service groups except hybrid work, which was kind of weird at first, but then it’s like, okay, it was a hard comp to a year before, but in the end, what really weighed on the stock was a soft guide. The company stuck to their annual guidance, but their quarterly guidance was weak and they got punished for that. Company talked about supply chain challenges. I’m hearing from multiple people about supply chain challenges. Nothing new, except that it’s kind of new for Cisco. But if your product orders are up 33%, you’re likely going to have these challenges. That reminds me very much of the crazy quarters in the PC market when it was up 40%, 45% and everybody was a stockout.
Daniel Newman: Yeah, it was a interesting quarter, Pat. I like how you said they led with the hardware revenue growth this quarter, but I guess sometimes companies have to look at what went well and lean into that when they’re announcing earnings. And sometimes the most long term strategic things don’t always pan out in every single quarter. You look at the revenue buckets, the highlights and stuff like that, you’ve got some of the areas of big growth, like the internet for the future growth was tremendous. You looked at which is all about the scale out for service providers, that was great. You look at things like hybrid work and it was down, showed it down for 7%, I believe is and a decline, which is interesting with WebEx, but at the same time, you are looking at with a return to work in mobility upcoming up that that had to slow, especially on an annualized basis because a year ago, our mobility was much less and companies were making much bigger investments. And sometimes people can’t see that.
Another area that was interesting was subscription revenue as an overall percentage of services. You saw in the quarter as overall, it was actually the product subscription revenue was up, but as an overall revenue, because the revenue was up, it actually went down a little bit. So we want to see that’s because the hardware and the order growth on infrastructure went up and while the revenue for subscriptions grew, it didn’t grow as fast as the rest of the business grew. So it actually now shows that it’s down a little bit. And that’s something that everybody is really zeroing in on is can the company pivot to ARR? Can it pivot to subscription revenue?Can it move off of licensing to more subscription types of revenue? And so all these factors are sort of working in… They’re magnetic polar in a way where they work against each other at times. So you actually have a good result in one area and it hurts another area.
Pat, this is a suitcase though, where I believe the guidance was like 2 cents. It was actually in range where the top end of guidance for this quarter came in at something like 80 to 82 and the street was looking for 82. I believe that’s what I have in front of me here. And so they basically penalized the company as if it was going to… It had made some really soft guidance. It basically said we’re going to be right about there. And I think everybody just wants to see growth faster.
I mean, for a company like Cisco and 8% year on year growth is good. I mean, now we’re seeing consecutive growth quarters, we’re seeing some success in the right areas. And I think the market just as a whole, has to start mentally adjusting for the fact that we are going to return to a more normal mobility power.
The last few weeks as I’ve gotten out and been traveling to events again, this feels like pre COVID to me. And I know that nobody really recognized that there’s a possibility we’d ever go back to traveling and being at event but we are seemingly going back. People are going back to offices. Took me two hours to get from Manhattan to JFK Airport on a Wednesday evening, which just goes to 15 miles. People are out, people are moving, events are happening, restaurants are full. And that means that some of the things that we’re being invested in that we’re heavily related to COVID are going to slow down. And it means that we’re going to start to see buying cycles change a little bit again.
Companies have poured money into tech and new know they might have to pour money into different parts of the tech stack now that were neglected somewhat during like infrastructure and stuff that’s going to go in the data center. So Cisco will be a bellwether for this. That’s what the company is. With such a diverse portfolio, that’s what we’re going to see. But like I said, I feel largely the company had a good result and I’m sure that punitive nature of wall street had less to do with the company’s results and more to do with the just completely unreasonable expectations that most people seem to have now for investments and returns.
Patrick Moorhead: Yeah. Good analysis, Daniel. The final thing I wanted to add, first time I’ve seen service provider up in a long time and that’s part of this internet of the future. So when the Hyperscalers became a big part of service provider and they started doing their own switches and routers and things like that, it looked like Cisco was just going to get completely pushed out of that market. And to their credit, what they did is they did co-designs with hyperscalers and Tier 2 hyperscalers to help create this Silicon one and a set of routers and switches and things like that, that are co-designed by the hyperscalers and the Tier 2.
So hats off. It looks like that’s starting to pay off. Now, you got a good comp of course because revenue wasn’t rocking it, but it’s really, really good to see a company’s plan come together.
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.
