Cisco’s Chuck Robbins: We’re Taking ‘Multiple Steps’ To ‘Mitigate Supply Shortages’

‘We ... have been working closely with our key suppliers and contract manufacturers, paying significantly higher logistics costs to get the components where they’re most needed, working on modifying our designs to utilize alternative suppliers where possible, and constantly optimizing our build and delivery plans,’ says Cisco Chairman and CEO Chuck Robbins.

Cisco Chairman and CEO Chuck Robbins told financial analystsWednesday during the company’s quarterly fiscal analyst call that the quarter was a good start for fiscal year 2022, with robust order growth of 33 percent and continued strong demand across its portfolio.

“Our ARR [annual recurring revenue] grew double digits and our momentum is accelerating, driven by digital transformation and cloud,” Robbins said during his prepared remarks. “Even with the ongoing supply constraint environment, we are solidly on track to deliver against our long-term financial targets by investing for growth while delivering breakthrough innovation.”

[Related: Cisco CEO Chuck Robbins’ 10 Boldest Statements From Best Of Breed 2021]

The past 18 to 24 months have accelerated the industrywide digital revolution, and Cisco’s technology is powering the modern secure infrastructure that sits at the heart of this revolution, Robbins said.

“And Cisco was well-positioned to capture the opportunities ahead,” he said. “Our customers want digital and cloud-enabled solutions that allow them to move with greater speed, agility and efficiency.”

Cisco is seeing positive impact from investments in driving accelerated innovation across high-growth areas such as hybrid cloud, webscale, cloud security, 5G, Wi-Fi 6, 400-Gbit networking and full-stack observability, Robbins said.

Those investments help Cisco meet the need for businesses to enable employees to work from anywhere, he said.

“And this is much broader than meetings,” he said. “It’s about the holistic capabilities to support a highly distributed workforce, whether you’re requiring new infrastructure, architectures, observability and security. Many companies are in the process of defining their hybrid work strategy, which will be based on the technology we build across our networking, securiy, and collaboration portfolios.”

The first fiscal quarter met Cisco expectations despite supply constraints, Robbins said.

“We have continued to operate successfully in a very dynamic environment, staying nimble in order to navigate the evolving conditions related to the Delta variant [of the COVID-19 pandemic] and global component shortages,” he said.

Cisco’s enterprise and commercial businesses saw its fourth consecutive quarter of accelerating order growth, Robbins said. The company also saw solid public sector growth, and its service provider segment delivered its highest level of order growth in over five years at 66 percent growth as customers addressed their growing bandwidth requirements, he said.

Cisco’s webscale saw order growth of over 200 percent, or 120 percent growth on a trailing four-quarter basis, Robbins said.

“We are very pleased with the early traction of our 400-gGig solutions, Cisco 8000 platform, Silicon One portfolio and rapid growth in our Acacia portfolio of optical networking products,” he said. “It‘s clear we’re expanding our footprint as our cloud growth rate is outpacing our peers.”

Robbins said Cisco is continuing to invest in webscale innovations and this quarter will launch the latest member of its Silicon One family, the 19.2-Terabit P100 routing device, which is the 11th chip in the Silicon One family. In addition, he said, Acacia marked a major milestone with the introduction of the industry’s first pluggable module capable of delivering 1.2-Terabit capacity on a single wavelength.

Cisco’s product revenue was up nearly $1 billion year over year after seeing broad-based demand across the majority of its product portfolio even as it continues its business model transition, Robbins said.

“Our focus on subscriptions allows us to deliver innovation faster to our customers while providing more predictability and visibility, leading to a more durable growth business over the long term,” he said. “We delivered software revenue of $3.7 billion, with 80 percent sold as a subscription. Subscription revenue increased by 4 percent to nearly $5.5 billion, while ARR increased by 10 percent year over year to $21.6 billion ... reflecting our rapid transformation to a software-led business model.”

Cisco’s revenue growth was impacted by supply constraints affecting the IT and other industries despite having a strong supply chain that has been executing well in a highly fluid and complex environment, Robbins said.

“We have been taking multiple steps to mitigate the supply shortages and deliver products to our customers, including working closely with our key suppliers and contract manufacturers, paying significantly higher logistics costs to get the components where they’re most needed, working on modifying our designs to utilize alternative suppliers where possible, and constantly optimizing our build and delivery plans,” he said. “We’re doing this at a breadth and scale that is significantly greater than most in our industry.”

These steps add to Cisco’s cost structure and, combined with supplier cost increases, put pressure on gross margins, Robbins said.

“While we’ve thoughtfully raised prices to offset this impact, the benefits are not immediate and it will be recognized over the coming quarters,” he said. “Our focus remains on our customers to ensure we provide them with the products they need as quickly as possible.”

Looking forward, Robbins said Cisco sees continued opportunities in a changing environment.

“As our customers accelerate their digital transformation and their adoption of hybrid cloud and hybrid work strategies, we believe we’re uniquely positioned to capture the opportunities ahead,” he said. “We will continue to strategically invest across our portfolio to drive growth in innovation, strengthen our competitive advantage and position Cisco for success. And I continue to have great confidence in our future.”

For its first fiscal quarter 2022, which ended Oct. 30, Cisco reported revenue of $12.90 billion, up 8 percent over the $11.93 billion the company reported for its first fiscal quarter 2021.

That missed analysts’ expectations by $90 million, according to Seeking Alpha.

This included product revenue of $9.53 billion, up from last year’s $8.59 billion, and service revenue of $3.37 billion, up from $3.34 billion.

On a product-specific basis, Cisco reported revenue for secure agile networks of $5.97 billion, up 10 percent; hybrid work of $1.11 billion, down 7 percent; end-to-end security of $895 million, up 4 percent; internet for the future of $1.37 billion, up 46 percent; optimized application experiences of $181 million, up 18 percent; and other products of $3 million, up 9 percent.

For the quarter, Cisco reported GAAP net income of $2.98 billion, or 70 cents per share, up year over year from $2.17 billion or 51 cent per share. On a non-GAAP basis, the company reported net income of $3.48 billion, or 82 cents per share, up from last year’s $3.21 billion or 76 cents per share.

That beat analysts’ expectations of 67 cents per share on a GAAP basis, and 80 cents per share on a non-GAAP basis, according to Seeking Alpha.

Cisco slightly reduced revenue and earnings guidance for its second fiscal and full year 2022, as reported by Seeking Alpha.

The company’s stock dropped about 6 percent in after-hours trading Wednesday to $53.31 per share.