Cisco’s year-end earnings conference call shows that the OEM’s software strategy is working, 400G Ethernet is ramping up, and chip supply shortages are still a problem.
According to Cisco’s financial reports for the fourth quarter of 2021 and the end of the year, the growth is in several product categories, important to businesses, including wireless products, campus switching, routing and security. . Cisco CEO Chuck Robbins said that in the fourth quarter, the company had the highest rate of product order growth in more than a decade. According to the latter, orders for products were up 30% year-on-year and 17% compared to orders in the fourth quarter of fiscal 2019 which preceded the health crisis. “In the fourth quarter, we delivered double-digit revenue growth in campus switching, Catalyst 9000 series switches, high-end routing, wireless and our zero trust solutions, as well as strong growth in our security product portfolio. We have also seen very strong adoption of our Acacia optical solutions,” Robbins said. He also discussed the progress the company has made since its reorientation towards software and services, the challenges of processor shortages and the growing demand for 400 Gb/s equipment.
Cisco and software
Cisco has been heavily involved in software for several years, and it’s paying off, literally. The company said software sales topped $4 billion, or about 31% of the vendor’s total revenue, in the fourth quarter of fiscal 2021. According to Robbins, “These numbers represent an increase 7% compared to the third quarter and 6% compared to the previous year”. According to Cisco, this growth makes it one of the largest software companies in the world, a point reiterated last week. “The benefits of this shift to software and subscriptions are clear and help Cisco and its customers move with greater speed and agility,” Robbins said on the earnings conference call. “As an example, software accounted for 31% of our business in the fourth quarter and, for the full year, if you combine it with our services business, it represents more than 53% of revenue. , which clearly shows the success of our continued business transformation.”
According to the company, Cisco’s subscription revenue grew 9% in the fourth quarter and 15% for the full year. “Software’s growth is the result of Cisco’s adoption of a consumption-based selling and pricing structure,” Robbins said. “Over the past year, we’ve added an impressive number of new features across our portfolio, while focusing on more flexible consumption models, not to mention our network-as-a-service capabilities. , highlighted by the recent launch of Cisco Plus,” said the CEO. According to the OEM, the Cisco Plus network will be able to provide networking, security, compute, storage and application services in unified, easy-to-use subscriptions. While the company plans to introduce an equally impressive number of service options under the Cisco Plus banner in the next few years, it only offers two so far. The first, Cisco Plus Hybrid Cloud, includes Cisco’s data center, compute, networking, and storage portfolio, as well as third-party storage software and components, all controlled by Cisco’s Intersight cloud management solution. Customers can choose the level of services they want for planning, design and installation. “While still in its infancy, Cisco Plus aligns directly with our transformation goals to drive more recurring subscription revenue through the cloud,” Robbins said.
Shortage of chips, rising prices
The tech industry continues to feel the impact of the semiconductor shortage. Regarding Cisco, Robbins expects supply difficulties and the impact on costs will continue to be felt for at least the first half of the fiscal year and potentially the second. The shortage has led to higher prices for some Cisco equipment. “We raised prices in a very selective, very targeted way, only on products where component costs were the highest,” Scott Herren, Cisco’s chief financial officer, told analysts at the earnings call. . “This increase took effect on August 7, but we are still honoring quotes issued for a 30-day period, at the rate in effect before this price increase was put in place.” Cisco’s competitors are also feeling the effect of the shortage. Recently, Arista CEO and President, Jayshree Ullal, summed up the situation as follows: “I have never experienced such a difficult situation. Worse still, I think it will continue,” he told analysts at Arista’s recent financial conference. “The shortage has affected everything from copper and waffers to labor, logistics and transportation,” Ullal said.
The rise of 400Gb/s Ethernet
The evolution to 400Gb/s Ethernet hardware has been gradual, but the need for increased speeds in high-end data centers and cloud services companies is growing, not to mention the robust access speed needs of many remote and hybrid workers. Illustrating this 400G surge, Robbins said that in the fourth quarter, orders for 400G ports were up 668%, and they were up 831% year-on-year. “Over 400 customers have deployed 400G, and we’ve taken orders for nearly 180,000 ports in total,” he added.
The Dell Oro Group recently wrote that the emergence of new products will be a big driver of overall growth over the next five years. “Network operators see 400G as a logical step to increasing network capacity at lower hardware and operational costs. “The ecosystem of 400G technologies, from silicon to optical, is gaining momentum, and more and more routers supporting 400G will be found in the market,” wrote Shin Umeda, vice president of Dell. Oro in a blog on the growth of 400G. “From 2021, large-scale deployments will significantly boost this market. By 2024, we expect 400G to generate nearly $3 billion in revenue for manufacturers and be widely deployed in all of the world’s largest networks,” added Umeda.