Cisco lauds solid Q3 despite 'challenging environment'

Chief Chuck Robbins says he is pleased with the vendor's performance as it transitions to more software and subscription focus

Networking giant Cisco has hit $12bn (£8.2bn) turnover for its third quarter ended 30 April, a growth of three per cent.

Net profit for the quarter dropped four per cent to $2.3bn, compared with $2.4bn the previous quarter, but the vendor also made five acquisitions in the quarter - including IoT platform specialist Jasper Technologies, cloud collaboration players Acano and Synata, semiconductor manufacturer Leaba, and cloud orchestration platform player CliQr.

Breaking down the revenue figure, the vendor revealed product revenue was up one per cent and service revenue up 11 per cent globally.

Looking more geographically, EMEA revenue dropped two per cent, but the US was up four per cent, with APJC up 10 per cent.

Product growth across the company was driven by security, collaboration and SP video, Cisco revealed; wireless and datacentre also grew, but switching and NGN routing shrank.

Chuck Robbins (pictured), chief executive of Cisco, said he was happy with the results.

"We delivered a strong Q3, executing well despite the challenging environment. I'm pleased with our performance today as well as the progress we're making in transitioning our business to a more software and subscription focus, which we'll continue to apply across our entire portfolio."

Kelly Kramer, chief financial officer at Cisco, added: "Once again we delivered a solid Q3, with three per cent top-line growth…and strong margins. We executed well on our financial strategy, allowing us to invest in our business model transition to software and recurring revenues so that our customers are able to consume Cisco technology in the way that is best for their business."

Looking ahead to the fourth quarter, the vendor said it expects growth of up to three per cent, and its non-GAAP gross margin rate to be between 63 and 64 per cent.

Martin Courtney, principle analyst at TechMarketView, said Cisco was heading in the right direction.

"The slow migration to a more software-orientated business with a greater emphasis on virtual network SDN/NFV platforms and security is also having a positive effect on Cisco's profitability, helping to boost total Q3 gross profit margin on a GAAP basis to 64.3 per cent compared with 61.6 per cent in Q3," he said.

"Crucially for Cisco's ambition of moving away from a hardware-dominated networking equipment market where consistent growth is increasingly difficult to sustain, services accounted for 26 per cent of Q3 2015 revenue compared with 23 per cent in Q3 2015.

"We expect that revenue balance will continue to shift over the next year as the five acquisitions Cisco made in Q3 2016 boost the company's cloud, collaboration and Internet of Things software and service capabilities further."