The News: Cisco reported first quarter (Q1) results for the period ending October 28. The company reported Q1 revenue of $14.7 billion, net income on a generally accepted accounting principles (GAAP) basis of $3.6 billion or $0.89 per share, and non-GAAP net income of $4.5 billion or $1.11 per share. Read the earnings press release on the Cisco website.
Cisco Q1 2024: AI, Security, Cloud, and Observability Fuel Results
Analyst Take: Cisco delivered the strongest Q1 in the company’s history in terms of revenue and profitability with $14.7 billion in revenue, up 8% year-over-year (YoY), GAAP earnings per share (EPS) $0.89, up 37% YoY, and non-GAAP EPS $1.11, up 29% YoY. Cisco CEO and chair, Chuck Robbins, championed confidence in the foundational strength of the company’s business and future growth as being fueled by AI, security, cloud, and observability.
Cisco demonstrated progress on its business model transformation in Q1 fiscal year (FY) 2024 consisting of:
- Total software revenue up 13% YoY and software subscription revenue up 13% YoY
- Total annualized recurring revenue (ARR) at $24.5 billion, up 5% YoY, and product ARR up 10% YoY
- Remaining performance obligations (RPO) at $34.8 billion, up 12% YoY and product RPO up 14% YoY
Here are additional key Cisco Q1 FY 2024 figures by the numbers:
- Gross margin. On a GAAP basis, total gross margin, product gross margin, and service gross margin were 65.2%, 64.5%. and 67.3%, respectively, as compared with 61.2%, 59.2%, and 67.3%, respectively, in Q1 fiscal 2023.
- Operating income. GAAP operating income was $4.3 billion, up 21%, with GAAP operating margin of 29.2%. Non-GAAP operating income was $5.4 billion, up 24%, with non-GAAP operating margin at 36.6%.
- Net income and EPS. On a GAAP basis, net income was $3.6 billion, an increase of 36%, and EPS was $0.89, an increase of 37%. On a non-GAAP basis, net income was $4.5 billion, an increase of 28%, and EPS was $1.11, an increase of 29%.
Balance Sheet and Other Financial Highlights
- Cash and cash equivalents and investments. $23.5 billion at the end of Q1 fiscal 2024, compared with $26.1 billion at the end of fiscal 2023.
- RPO. $34.8 billion, up 12% in total, with 51% of this amount to be recognized as revenue over the next 12 months. Product RPO were up 14%, and service RPO were up 11%.
Delving Deeper into Cisco’s Q1 2024 Earnings
Cisco bested the top line and bottom line in Q1 fiscal 2024 as well as delivered double-digit growth across software subscriptions, ARR, and RPO, which we see as pointing to Cisco’s tangible progress in executing its business transformation model away from its big iron roots. The ARR, RPO, and software outcomes are reinforced by Cisco’s acumen in partnership collaboration and extensive channel influence.
From our view, Cisco Partner Summit 2023 highlighted the company’s ongoing strategic commitment to work with its partners to drive innovation and joint profitability. The event serves as a platform for Cisco to foster collaboration, share insights, and bolster bonds with the company’s partners with the goal of shaping the future of digital transformation and creating greater value for organizations across a vast array of industries and geographies.
AI Factors: Cisco Validated Designs for AI
Cisco highlighted its collaboration with partners to drive AI, security, and observability innovations as well as shape the technological shifts across 5G, cloud, applications, and sustainability. For instance, Cisco is working with strategic partners, such as NVIDIA, Intel, AMD, NetApp, Nutanix, Pure Storage, and Red Hat, on Cisco Validated Designs (CVDs) for AI use cases. Cisco is promoting that these solutions build on the track record of proven capabilities and existing IT processes, aiding the acceleration of customer AI journeys while avoiding unnecessary risk or new silos of operations, especially in supporting IT teams at preparing their infrastructure for AI-readiness.
Observability Factors: New Observability Ecosystem for Partners
Cisco identifies that development partners are seeing definitive business value in the Cisco Observability Platform and are building modules focused on five critical areas: Business Insights, SAP Visibility, Networking, MLOps and Service Level Objectives (SLOs), and Sustainability. Accordingly, this new evolving observability ecosystem is aiding customers in meeting their specific observability requirements, cultivating an environment where they can get value from observable telemetry.
Naturally, we expect that the Splunk acquisition will eventually have a direct bearing on the portfolio development of the Cisco Observability Platform. Within the observability market, Cisco has real work to do when it comes to product integration of the Splunk assets and developing a solid roadmap. For example, the ThousandEyes, App Dynamics, and Splunk Observability cloud will take skillful product management to craft together into a cohesive product roadmap that services the cloud and on-premises needs of both the Cisco and Splunk channels and customer bases.
We foresee this integration strategy as being the top priority work item in the clean room over the next three to four quarters and expect Cisco to come out with a solid roadmap soon after the acquisition closes if the company does not tease it beforehand.
Security Factors: New Cisco Security Suites
Cisco introduced new Security Suites to provide a more integrated, predictable, and economical approach to buy and consume Cisco’s portfolio of security products. The suites center on three use cases – user, cloud, and breach protection. They are developed to improve security efficacy, improve the user experience, and boost ROI as well as work across multiple clouds and private infrastructure and interoperate with other systems and tools.
Cisco Q1 Fiscal 2024: Guidance
Cisco saw a slowdown in new product orders during Q1 of fiscal 2024 and believes the primary reason is that customers are currently focused on installing and implementing products in their environments following exceptionally strong product delivery over the past three quarters. As such, Cisco set a cautious tone by estimating there are one to two more quarters of shipped product orders still waiting to be implemented by customers.
Cisco Q1 2024: Key Takeaways
By delivering revenue and EPS at the high end or above its guidance range, Cisco realized strong operating leverage, especially in generating double-digit YoY growth in software revenue, product ARR, and total RPO. After its customers implement large amounts of recently shipped product, we anticipate that Cisco’s product order growth rates will accelerate in the second half of 2024.
Overall, modest yet consistent gains produced a record quarter for Cisco. From our view, this is a positive sign for both Cisco and the enterprise IT space as it indicates that gradual recovery and strong spending around AI, cybersecurity, and other key adjacent areas are increasingly in play. Ultimately, Cisco’s guide will set a broader cautious tone around its brand.
As a result, we find that the numbers alone are areas that should be seen as more positive and indicative of stronger periods to come for Cisco, especially in balancing against macro considerations such as inflationary concerns, geopolitical uncertainties, and the transformative impact that AI poses for the tech sector and the overall economy.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discussed Company earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other Insights from The Futurum Group:
Cisco Partner Summit 2023: AI, Security, and Observability Shine
Cisco Live 2023: Cisco Launches AI-Powered Security Cloud to Empower Enterprise Security Teams
Cisco Q4 and FY 2023: AI, Security, and Cloud Fuel Milestone Results
Author Information
Ron is an experienced, customer-focused research expert and analyst, with over 20 years of experience in the digital and IT transformation markets, working with businesses to drive consistent revenue and sales growth.
Ron holds a Master of Arts in Public Policy from University of Nevada — Las Vegas and a Bachelor of Arts in political science/government from William and Mary.
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.
