Four key takeaways from Cisco's Q2 results

We break out the key info from Cisco's latest quarterly results

Cisco reported buoyant results for its second fiscal quarter ending 29 January, with total revenues up six per cent year on year to $12.7bn and GAAP operating income up eight per cent to $3.5bn.

It marks the fourth consecutive quarter of revenue growth for the networking giant, lifting its share price by five per cent in extended trading on Wednesday.

Product revenues continue upwards trend while services dips

Product sales continued to rally in Q2, surging by nine per cent to $9.35m, which helped mitigate a one per cent decline in services sales which fell to $3.37bn.

On an earnings call, transcribed by Seeking Alpha, Cisco's CFO Scott Herren said that Cisco's Secure, Agile Networks business grew by seven per cent during the quarter, led by strength in its switching business thanks to a double-digit boost in datacentre switching particularly from its Nexus 9000 products.

Campus switching saw "strong growth" during the quarter, led by Catalyst 9000 and Meraki sales, while wireless networking saw a double-digit improvement.

So called ‘Hybrid Work' sales (which will be rebranded to ‘Collaboration' sales from next quarter), which includes Webex, declined by nine per cent in Q2 due to a downward trend in its collaboration devices and meetings products.

End-to-end security sales grew by seven per cent with "broad strength" across the portfolio and its Zero Trust offering enjoying double-digit growth.

Cisco's so-called "Internet of the Future" segment, which includes routed optical networking, public 5G, silicon and optics products, grew by 42 per cent during the quarter, contributing $1.2bn to the business.

Lastly, "Optimised application experiences", which includes products such as ThousandEyes and Intersight, grew sales by 12 per cent.

Sales in EMEA grew by 11 per cent year on year to $3.56bn. Sales in APJC grew by 13 per cent to $2.01bn, while sales in the Americas grew three per cent to $7.15bn.

Robbins tight-lipped on Splunk acquisition rumours

At the beginning of this week, the Wall Street Journal reported that Cisco had made an offer worth more than $20bn to acquire data visualisation vendor Splunk.

The acquisition would be Cisco's largest-ever acquisition, eclipsing its $6.9bn acquisition of Scientific Atlanta in 2005.

One analyst asked Robbins if the rumours have any truth to them, and the CEO remained tight-lipped on the deal, but added that the firm is "constantly evaluating potential opportunities".

"For every deal we do, we probably look at 10 to 15 companies. We base our decisions on, first and foremost, strategic fit; secondly, cultural fit and, equally as important, the financial and the valuation fit," he said.

"We are always disciplined, and we continue to focus on both inorganic and organic opportunities. But I will tell you that you should expect us to continue to be very, very disciplined as we go forward as well."

Supply chain issues ‘didn't get better, didn't get worse'

Like other hardware vendors, Cisco was badly affected by supply issues stemming from a global shortage of semiconductor chips. Back in April 2021, Cisco CEO Chuck Robbins predicted that the issues will last at least another six months, labelling it as a "big problem" for the industry.

Supply issues related to global chip shortages will continue to impact Cisco in the second half of its fiscal year which ends in July, Robbins told investors.

Robbins added that supply issues "didn't get materially worse and didn't really get materially better" during the quarter.

"Towards the end [of the quarter] there was some Omicron effect with people being sick and not being able to show up in factories and some of the logistics issues that are well documented," he said.

"I wouldn't say we have a great timeline as to when things begin to improve. All we know now is we expect this to be with us through the second half of our year."

Subscription and recurring revenues continue to rise

Cisco continued to see success in its quest to transform itself into a software business in Q2, with total subscription revenues up by seven per cent year on year to $5.5bn.

Subscription revenues accounted for 44 per cent of its total revenues during the quarter, it added.

Its annualised recurring revenue (ARR) was 21.9bn, up 11 per cent year on year with product-based ARR growth coming in at 20 per cent.

Around 80 per cent of Cisco's $3.8bn in software revenues in Q2 were software-based, the vendor claims.