Shortage of components puts a strain on OEM revenues

Like many of its competitors, Cisco’s revenue has grown in response to unmet demand, but chip shortages and other supply constraints continue to weigh on the industry. “We’re still one of the largest software vendors in the world,” Cisco CEO Chuck Robbins told financial analysts on a January fiscal second quarter earnings conference call. “In the second quarter, our software revenue grew 6% to $3.8 billion, and total subscription revenue accelerated to $5.5 billion, up 7% over one year,” he added.

The CEO of Cisco also insisted that “due to a delay in shipments related to the shortage of components, the subscription to equipment-dependent software and services still weighed negatively on these two results “. In total, Cisco said its 2Q revenue reached $12.7 billion, up 6% from a year earlier. At the same time, the value of Cisco’s current backlog is nearly $14 billion, an increase of more than 150% over the previous year. “In this backlog, software’s share has almost doubled to more than $2 billion,” said Scott Heron, Cisco’s chief financial officer.

Longer deliveries at Juniper

By comparison, Juniper, a direct competitor to Cisco, recently reported that its order backlog reached a “record high of over $1.8 billion”. During the recent earnings conference call, Arista President and CEO Jayshree Ullal said it sometimes takes 50 to 70 weeks for the OEM to honor sales. “Hard to be happy about that,” Mr. Ullal said. “Current supply constraints have not only impacted our ability to ship hardware, but also the delivery of software, including the subscriptions customers request with the hardware,” Heron said. “This undelivered software is also included in the backlog until the equipment ships, when we begin to recognize revenue,” added Cisco’s chief financial officer.

As to whether the component shortage is getting better or worse, Robbins decided between the two. “I would say that during the quarter, the supply chain didn’t get significantly worse, but it didn’t really get better,” the CEO said. “It is difficult to say when this situation will improve. All we know for now is that the shortage and its consequences will continue for the second half of the year”. According to experts, the shortage forced Cisco and its peers to increase their prices by an average of 10%. “Some customers are clearly trying to order before the price increases, and while they initially showed some understanding, there is more frustration now, mainly because of the delays in getting the product,” said Chuck Robbins. “They are running out of patience, like all of us. However, understanding is still required, because most of our customers have to do the same with their customers and, in general, with any business. Inflationary pressure is visible everywhere”.