Cisco: Q3 revenue down 13 per cent in line with expectations, exec shuffle puts former Splunk CEO in president role

Jeff Sharritts is departing the networking giant after more than 20 years, meanwhile some of Splunk’s benefits to Cisco are coming through in the quarterly revenue numbers

Cisco recorded $12.7bn in revenues during the fiscal 2024 third quarter, ended April 27, down 13 per cent year-over-year, in line with the vendor's expectations.

Splunk contributed $413m in revenues.

The vendor saw $6.9bn in total subscription revenue, including Splunk, up 12 per cent year-over-year. Without Splunk, subscription revenue grew five per cent.

"We have transformed our business model with revenue from subscriptions now accounting for more than half of our total revenue, even before the addition of Splunk," Cisco Systems CEO Chuck Robbins said on the networking giant's quarterly earnings call Wednesday.

With Splunk, total software revenues ticked up five per cent to $4.5bn. Software subscription revenues grew 17 per cent. Without Splunk, total software revenues were down four per cent year-over-year, and software subscription revenue increased six per cent, Scott Herren, Cisco's chief financial officer, told analysts on the call.

Total annualised recurring revenue (ARR) was $29.2bn, up 22 per cent. Splunk contributed $4.2bn. Cisco's Splunk-less ARR grew five per cent.

Cisco's product ARR was $15.5bn, a surge of 44 per cent year-over-year. Product ARR without Splunk rose nine per cent.

Including Splunk, security product sales grew in revenue by 35 per cent and observability sales were up 27 per cent. Cisco's ThousandEyes network services lent a helping hand in the observability growth, Herren said.

Operational costs up owing to channel enablement

Herren told analysts the vendor could see operational costs grow in fiscal year 2025 due to new channel enablement resources and new training for the Cisco and Splunk sales teams.

He added this won't be "a substantial ramp up" in integration investment.

"There is investment that goes along with that integration, and fiscal ‘25 is the year we'll do that," Herren said. "This wasn't a deal that was motivated by cost synergies. It was much more motivated by revenue synergies. … We will see those revenue synergies begin to ramp in the second part of fiscal '25 as these are not short sales cycles, as we get our team ramped up on how to sell Splunk, as we get the Splunk team ramped up on how to sell Cisco, and as we get our channel fully enabled to sell that."

What does Robbins plan to leverage?

The networking giant CEO wants to leverage "Cisco's robust partner and customer ecosystem in markets where Splunk had limited or no presence" to grow the business of his new security and observability subsidiary – and partner conversations have led Cisco to believe that its equipment consumption issues are coming to an end.

"With our unified platform approach, vast global partner ecosystem, and ability to support hybrid and multi cloud environments, we will deliver innovation at an unprecedented pace and scale to organisations around the globe," Robbins said on the call.

Robbins' employees are also at work "aligning our Cisco and Splunk sales forces and accelerating channel enablement processes for cross selling and upselling our combined solutions," with about 5,000 customer accounts identified "who have the potential to become meaningful Splunk customers."

"Our sales teams are already making those connections," Robbins said.

Splunk CEO in president role

Cisco has moved Gary Steele from the role of executive vice president and general manager of Splunk to a new position as president of go-to-market while EVP and chief customer and partner officer Jeff Sharritts will leave the networking giant after more than 20 years as an employee.

Sharritts' departure is set for the end of the Cisco fiscal year in mid-July.

Cisco revealed the executive changes in a blog post penned by Robbins, stating the vendor is "taking the next step" in making its 40-year-old GTM engine "one of the most sophisticated and extensive."

Steele and his organisation – which includes sales, partner, and global marketing teams – "will evolve [Cisco's] sales and go-to-market motions to execute against strategy, align with customer needs, and drive a culture of intense competition, agility, and continuous improvement," Robbins said in the post.

The Splunk team will continue to report to Steele, according to the post. Steele officially joined Cisco with the vendor's close of the $28bn purchase of Splunk in March.

He served as Splunk's president and CEO for about two years, according to his LinkedIn account. He came to Splunk after more than 19 years as CEO of Proofpoint.

Future revenue guidance

Cisco expects to see $13.4bn to $13.6bn in revenue in the fiscal 2024 fourth quarter. For the entire fiscal year, Cisco expects total revenue of $53.6bn to $53.8bn.

Splunk should contribute $950m to $1bn in revenue, Herren said. For fiscal year 2025, Cisco predicts revenue growth "in the low- to mid-single digit range" and interest from the Splunk acquisition to turn into a headwind of about $350m a quarter.

Cisco will also have to invest in operational expenditures to drive "revenue synergies" with Splunk, Herren said, with fiscal year 2025 operating margins in line with fourth-quarter expectations.