Five key takeaways from Cisco's Q1 results

Vendor reports revenue and income rise for Q1

Cisco has published its first quarter results, with revenue and income both rising year-on-year.

The networking vendor has shifted more towards a software and services focus in recent years, which CEO Chuck Robbins reiterated at the company's recent partner summit.

But the vendor's product sales continue to drive growth, as demonstrated in its most recent financial quarter.

Here are five key takeaways from Cisco's Q1…

Revenue, income and EPS up, but share price falls

Cisco's first quarter saw the company's revenue climb eight per cent compared with the same period last year to reach $12.9bn.

Meanwhile, non-GAAP net income also rose eight per cent to $3.5bn while non-GAAP earnings per share (EPS) increased to $0.82 from $0.76.

But despite these increases, Cisco's share price tumbled following the release of its latest financial results, with CNBC reporting that its shares fell by as much as eight per cent on Wednesday.

Some investor expectations had forecast more from Cisco's guidance, with January quarter revenue guidance short of Wall Street estimates.

Supply shortage woes and prices increase

In the earnings call announcing the results, CEO Chuck Robbins said ongoing supply constraints had impacted sales.

"While our revenue growth was solid, it was impacted by the supply constraints which are affecting our technology peers, and nearly every other industry," he said.

"Our product orders were extremely strong and balanced across our markets. But we are constrained in what we can build and ship to our customers.

"We have been taking multiple steps to mitigate the supply shortages and deliver products to our customers, including working closely with our key suppliers and contract manufacturers, paying significantly higher logistics costs to get the components where they are most needed, working on modifying our designs to utilise alternative suppliers where possible, and constantly optimising our build and delivery plans.

"Of course, all of these steps, while necessary to maximise our production and delivery to customers, add to our cost structure.

"When combined with cost increases, we are seeing from many of our suppliers, these factors are putting pressure on our gross margins. While we've thoughtfully raised prices to offset this impact, the benefits are not immediate and will be recognised over the coming quarters."

EMEA performance up by more than Americas

In EMEA, sales saw an 11 per cent rise for Cisco to reach $3.3bn compared with five per cent in the Americas and 15 per cent in APJC.

Product orders in EMEA also increased by 36 per cent, while the Americas was up 31 per cent and 39 per cent in APJC.

Total gross margins by geographic segment were 64.5 per cent for the Americas, 64.4 per cent for EMEA and 64.7 per cent for APJC.

Bigger focus on recurring revenue

Cisco has been putting more emphasis on its software, services and recurring revenue business recently, with Robbins praising the company's partners for aiding its transformation at its recent Partner Summit.

And while services revenue only increased by one per cent, Cisco's move towards as-a-service showed in its latest results, with total subscription revenue of $5.5bn, an increase of four per cent while the product portion increased by seven per cent.

Total subscription revenue represented 43 per cent of Cisco's total revenue, and annualised recurring revenue was $21.6bn, an increase of 10 per cent, with strong product ARR growth of 21 per cent.

The vendor's service provider segment also delivered its highest level of order growth in over five years at 66 per cent, while software revenue stood at $3.7bn, with 80 per cent sold as a subscription.

"We're striving to maximise value creation through our focus on higher concentrations of software and subscription-based revenue streams," Robbins added.

"This gives us, and you, greater visibility and predictability into our future growth."

Product sales increase

However, Cisco's product growth outperformed that of services with revenue up 11 per cent to $9.53bn.

Year-over-year total product order growth, meanwhile, stood at 33 per cent.

Cisco said its product revenue performance was led by growth in Secure, Agile Networks of 10 per cent, Internet for the Future of 46 per cent, End-to-End Security of four per cent and Optimized Application Experiences of 18 per cent.

"We saw a broad-based demand across the majority of our product portfolio," Robbins said.