Cisco Secure Networks revenue grows 22 per cent in 'milestone' FY23 as record backlog clears

The tech giant’s Secure, Agile Networks segment, which includes the core switching and routing businesses, posted impressive revenues that climbed 33 per cent during its final fiscal quarter of 2023

Cisco Systems has entered a brand-new fiscal year with its sights set on AI, cloud and security as its expected revenue drivers, but the company is currently seeing substantial traction and market share gains within its bread-and-butter enterprise networking portfolio, according to the tech giant's executives.

Cisco's "milestone" 2023 fiscal year saw the company make strides in its business transformation away from hardware, especially as the global supply chain loosened to make it possible for Cisco to chip away at its product order backlog, according to Cisco Chairman and CEO Chuck Robbins.

San Jose, California-based Cisco's progress in favour of software and subscriptions led to its total annual recurring revenue (ARR) climbing ten per cent for the full 2023 fiscal year and five per cent during the fourth fiscal quarter of 2023 to $24.3bn.

Total software revenue grew 17 per cent and software subscription revenue rose 20 per cent year-over-year and 85 per cent of software sales were subscription-based, Robbins told investors during the company's fiscal Q4 2023 and full year earnings call on Wednesday evening.

"Cisco is committed to helping our customers navigate this transition in a trusted and responsible way … I've never seen such consistency around the [IT] priorities in virtually every customer around the world and our portfolio lines up nicely against the key things that our customers are trying to achieve," Robbins said.

During its fourth and final fiscal quarter 2023, Cisco's Secure, Agile Networks E, which includes the core switching and routing businesses, posted impressive revenues of $8.13bn during the quarter, a whopping 33 per cent incline compared to Q4 2022's result.

The segment increased 22 per cent during the full 2023 fiscal year after being significantly affected by supply chain constraints in earlier quarters. This quarter, however, the segment was buoyed by strength in the company's popular Catalyst and Meraki product lines, said Cisco CFO R. Scott Herren.

Cisco's Catalyst line can now be managed via the Meraki dashboard, one of Cisco's more popular portfolio updates announced last year that Robbins said had been "really well received" by customers in FY 2023.

Cisco's product revenues, which was led by the Secure, Agile Networks segment, climbed 20 percent and service revenues increased by four per cent during Q2 2023, said Herren. For the full fiscal year, product revenues climbed 13 per cent and services revenues increased 2 per cent.

Herren said the company was able to draw down its once record-breaking backlog and got more products into the hands of customers. He said Cisco expects much of the excess backlog to ship out in the first fiscal quarter of 2024. Lead times for products for customers and partners are also expected to be normalised by the end of the first half of fiscal 2024, Herren added.

Cisco's End-To-End Security segment stayed flat quarter over quarter with revenues of $987m. The segment increased by four per cent for the full year, which Herren attributed to strength in the company's unified approach to security management and its platform play.

The tech giant closed three acquisitions during the fourth quarter, including privately held cloud security software company Lightspin Technologies; Armorblox, a company that has pioneered the use of large language models (LLMs) and natural language understanding in cybersecurity; and Smartlook, a provider of qualitative analytics for websites and mobile apps, to boost Cisco AppDynamics' Digital Experience Monitoring (DEM).

Cisco's struggling Collaboration segment continued to decline, falling 12 per cent year-over-year to $1.02bn in revenue compared to Q4 2022, which the company attributed to declines in meetings, slightly offset by growth in Calling and Contact Centre. The segment declined nine per cent during the full 2023 fiscal year.

Cisco's Internet for the Future segment, which includes the company's telecommunications, cloud, and optical networking products, climbed one per cent during the full year and three per cent year-over-year in Q4 with revenues of $1.299bn. Cisco's Webscale business, according to Herren, saw double-digit growth during the final fiscal quarter.

For Cisco's fiscal Q4 2023, which ended 30 July, revenue climbed 16 per cent to $15.20 bn compared to the same period a year ago. Cisco posted non-GAAP earnings per share of $1.14 cents, a 37 per cent increase compared to a year ago and non-GAAP net income of $4.68bn in the fourth fiscal quarter of the year.

For the full fiscal 2022-year, Cisco reported revenue of $57.0bn, up 11 per cent compared to fiscal 2022. Non-GAAP earnings per share increased 16 per cent year-over-year for fiscal 2023. Robbins said that FY 2023's revenue increase of 11 per cent was the company's highest growth rate in more than a decade.

Cisco's stock was up two per cent in after-hours trading Wednesday to $54.04 per share following Q4 results that topped Wall Street's estimates, but the company issued modest product growth guidance for fiscal year 2024.