Top four takeaways from Cisco's latest results
We sifted through Cisco's Q4 numbers, so you don't have to
Cisco's shares slid by over two per cent in after-hours trading last night after it lifted the veil on its Q4 and full-year numbers. Here are the four top takeaways:
Cisco hasn't grown for seven quarters
IBM hasn't grown for 21 quarters, but Cisco is doing a good job of chasing down this dubious record set by its fellow legacy tech giant.
The two vendors' efforts to reshape their businesses for the cloud and software-defined era have taken a toll on their top lines, with Cisco registering its seventh straight quarterly fall in sales in its Q4.
CEO Chuck Robbins' assertion that the latest results "demonstrate solid execution against our strategic priorities" doesn't alter the fact that its revenues fell four per cent year on year to $12.1bn (£9.4bn) in the three months to 29 July.
This is despite Cisco acquiring three firms since the start of 2017 and announcing its intention to acquire two more, in the form of software-defined WAN specialist Viptela and security vendor Observable Networks.
Cisco hasn't grown for nearly two years, but with the networking giant forecasting that revenue will slump by a further one to three per cent in its fiscal 2018, that downward trend shows no sign of abating.
Cisco's quest for recurring revenues is intensifying
Shifting from one-off product sales to a recurring revenue model lies at the heart of Cisco's transition under CEO Robbins, and the vendor claimed it had made further progress on this score in its Q4.
For the first time, over $1bn - or 11 per cent - of Cisco's product revenue came from recurring offers during the quarter, a 40 per cent leap year on year, Robbins said on an earnings call. This means that 31 per cent of its total sales are recurring, with revenue from subscriptions now making up 51 per cent of its software revenue.
The rationale behind Cisco's quest for recurring revenues was laid bare in the results as sales of the switching and routing portfolios on which it built its business both declined nine per cent during the quarter.
Robbins held up Cisco's recent 'Network Intuitive' launch as a prime example of how the vendor is moving its core business to a recurring revenue model. He claimed that the reception to the launch has been "incredibly positive", revealing that 200 customers ordered the new Catalyst 9000 switches that are at the heart of the new platform in the four weeks following its launch.
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Top four takeaways from Cisco's latest results
We sifted through Cisco's Q4 numbers, so you don't have to
Cisco is not getting its fair share of cybersecurity growth
If Gartner is correct in its forecast that global IT security spending will grow seven per cent this year, Cisco isn't getting anywhere near its fair share of that market expansion.
Cisco is understandably making a big bet on cybersecurity, with several of its acquisitions over the last two to three years (Observable Networks, Cloudlock, Portcullis, OpenDNS) aimed at bolstering its prowess in this area.
But perhaps surprisingly, Cisco's annual security growth slumped to just three per cent in Q4 at a time when it needs to be firing. This compares with nine per cent growth in the previous quarter, and 16 per cent in the same quarter last year.
Robbins characterised Q4 as a "solid" one for its security business, with "strong performance" in unified threat, web security and advanced threat offset by declines in its legacy firewall offering. He pointed out that security orders rose in the double digits during the quarter and that deferred revenue grew 49 per cent as the drive to more subscription-based software offers increased.
Robbins said Cisco added over 6,000 next-generation firewall customers in the quarter, which he claimed was three times its nearest competitor, and he emphasised that Cisco's security play extends well beyond its security products.
"We believe we are well positioned as the number one enterprise security vendor," he said. "With growing cyberattacks and the need for our customers to protect their business-critical data and applications, we are aggressively providing security everywhere. In the network, in the cloud, and at the end point. We don't believe any other company can match our capabilities given the criticality of the network in our customers' security architecture."
UK still a problem child
Robbins congratulated the UK team for doing a "really amazing job" in Q4, despite admitting that the currency headwinds created by Brexit are continuing to depress its EMEA performance.
Cisco's Americas business is hardly firing on all cylinders, shrinking six per cent in Q4 year on year. But EMEA matched that decline as sales on this side of the pond slumped by the same percentage to $2.93bn.
Robbins admitted on the call that the UK remains a problem child.
"In Q4, what I'll tell you is that headwind from currency remained, it did not ease up," he said on the call, a transcript of which can be found here.
"However, our teams did a really amazing job and we saw significant improvement in our enterprise and commercial business in the UK. And if you look at the overall performance in EMEAR, you can see that the strengthening in the UK for us actually helped achieve the result at the EMEAR level."