The News: Cisco announced the company’s revenue declined slightly in the fourth quarter (Q4), which ended July 30. Net income decreased by 6% to $2.82 billion as the company’s adjusted gross margin narrowed to 63.3% from 65.3% in the previous quarter. Analysts had predicted 64.7%. For the 2023 fiscal year, Cisco called for adjusted earnings per share of $3.49 to $3.56 and 4% to 6% revenue growth. Analysts polled by Refinitiv had expected adjusted earnings of $3.53 per share, with revenue of $52.79 billion, or growth of 2.3%. In the 2022 fiscal year, revenue increased by 3.4%. Read the Cisco Press Release here.
Cisco Q4 2022 and FY 2022: Delivering Business Momentum and Beating Expectations
Analyst Take: Cisco Q4 and FY 2022 revenue figures show the company is advancing its transition towards a more software and services-oriented model as we see organizations generally dial back on purchasing hardware-centric gear. Notably, Cisco’s transition is coinciding with ongoing macro uncertainties such as inflation, turbulence across global supply chains, and geopolitical tensions, which also afflict many other players.
Here are the Cisco Q4 and FY 2022 figures by the numbers:
- Cisco ended fiscal 2022 with Q4 revenue at $13.1 billion, flat year over year and fiscal year revenue of $51.6 billion, up 3% year over year
- Strong demand with record full year product orders and backlog
- Progress on business model transformation with total Annualized Recurring Revenue (ARR) at $22.9 billion in the fourth quarter of fiscal 2022, up 8% year over year
- Q4 FY 2022 Results:
- Revenue: $13.1 billion
- Flat year over year
- Revenue: $13.1 billion
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- Earnings per Share: GAAP: $0.68; Non-GAAP: $0.83
- GAAP EPS decreased (4)% year over year
- Non-GAAP EPS decreased (1)% year over year
- Earnings per Share: GAAP: $0.68; Non-GAAP: $0.83
- FY 2022 Results:
- Revenue: $51.6 billion
- Increase of 3% year over year
- Earnings per Share: GAAP: $2.82; Non-GAAP: $3.36
- GAAP EPS increased 13% year over year
- Non-GAAP EPS increased 4% year over year
- Revenue: $51.6 billion
- Q1 FY 2023 Guidance:
- Revenue: 2% to 4% growth year over year
- Earnings per Share: GAAP: $0.64 to $0.68; Non-GAAP: $0.82 to $0.84
Altogether we view Cisco’s Q4 results as impressive since the company beat on both top and bottom accented by a strong top line beat. With guidance arriving on par, the sceptics of Cisco’s prospects were foreordained to disappointment as shown here by topping earnings and revenue estimates:
- Earnings: 83 cents per share, adjusted, vs. 82 cents per share as expected by analysts, according to Refinitiv.
- Revenue: $13.10 billion, vs. $12.79 billion as expected by analysts, according to Refinitiv.
We see Cisco delivering revenue above its guidance range and non-GAAP EPS at the high end, producing record EPS for the full fiscal year (FY) 2022 as validating the company’s effectiveness in executing its strategy to reduce the impact of global supply chain uncertainties. From our view, Cisco’s business transformation progress is further reflected by the increase in its annualized recurring revenue (ARR) up 8% year-over-year (Y/Y) with product ARR up 13% Y/Y coupled with remaining performance obligations (RPO) up 2% Y/Y and product RPO up 6% Y/Y.
Digging Deeper into Cisco’s Q4 2022 Revenue
Cisco’s top business segment, Secure, Agile Networks (i.e., data center networking switches) provided 46% of total revenue at $6.09 billion, down 1% from a year earlier but above the $5.86 billion consensus from analysts polled by StreetAccount.
Of concern, the second-largest unit, Internet for the Future, which includes routed optical networking product offerings, contributed $1.26 billion in revenue, down 10% and below the $1.36 billion consensus. The Collaboration segment featuring Webex contributed $1.16 billion in revenue, up 2% and above the $1.10 billion consensus.
Cisco’s End-to-End (E2E) Security unit delivered $984 million in revenue, up 20% Y/Y, providing top performance at the unit level based on Y/Y revenue. This aligns with the cybersecurity becoming more vital to the strategic priorities of organizations across the digital ecosystem.
We see the expansion of distributed workforces, including work-from-home and hybrid employees, and greater reliance on SaaS applications introducing new security gaps across the edge. As such, the Cisco E2E Security portfolio is well-suited to meet these emerging security challenges, especially given Cisco’s strong presence and influence across enterprise and service provider environments.
Cisco’s Unified Experience for Cloud Networking: Fueling Portfolio-wide Innovation Momentum
At Cisco Live! in June 2022, Cisco announced its vision to enable IT teams to work smarter and simplify their operations with new innovations in cloud-managed networking and unified technology experiences. Cisco unveiled new cloud management capabilities that are designed to provide a unified experience across the Cisco Meraki, Cisco Catalyst and Cisco Nexus portfolios and a new Cisco ThousandEyes product to proactively forecast and optimize WAN performance.
We expect that Cisco’s unified experience proposition addresses the main challenges that so often hamstring IT teams in using the repetitive and error-prone conventional approach of individually bringing up switches and firewall configurations. Through Cisco Nexus, now IT teams can use auto-discovery to onboard switches, minimizing errors and delays. As such we expect that Cisco can execute on its strategic vision of using its cloud infrastructure portfolio to provide the cloud-delivered operations critical to assuring optimal cloud networking.
Cisco Q4 2022 and FY 2022: Key Takeaways
From our perspective, the Unified Experience for Cloud Networking vision and portfolio development strategy validates Cisco’s ability to sustain the portfolio innovation key to fulfilling swiftly evolving customer cloud networking requirements. We anticipate that the trinity of Cisco Nexus, Cisco Catalyst, and Cisco Meraki portfolios can deliver the unified experience across hybrid cloud operations that is critical to harmonizing the roles and units such as network administrator, server administrator, and site reliability engineer across organizations. This consists of using a simplified SaaS experience, streamlined adoption, and easy to consume enterprise and service provider agreements as the building blocks underpinning the unified experience across any cloud environment.
Overall, we view the record backlog and remaining performance obligations (RPO) give Cisco substantial visibility and confidence in future revenue streams that can improve business outcomes for the company as well as its customers and partners. We are encouraged that Cisco is demonstrating the operational disciple to attain the healthy operating margin and robust cash flow generation needed to return almost $4 billion to shareholders in Q4. As a result, Cisco’s competitive foundation exhibits the durability to power continued investments in innovation throughout its networking, security, collaboration, and optimized applications portfolios.
Disclosure: Futurum Research 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 Futurum Research as a whole.
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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.
