Cisco’s lag still looms large | Network world

Like many of its competitors, Cisco’s quarterly and year-end financial results show the upsides and downsides of the current economy — record orders for new products alongside record backlogs.

Cisco reported that for the period ending July 30, its quarterly revenue was virtually unchanged from a year earlier at $13.1 billion, but fiscal 2022 revenue rose three percent to $51.6 billion.

“Full-year product orders and backlog are at record highs,” Cisco CEO Chuck Robbins said in a written statement ahead of the company’s quarterly and year-end telephone briefing on Wall Street.

The company said the order backlog is due to supply chain issues facing the entire industry and that it is addressing them on many fronts, including reengineering products with components that are more readily available.

Cisco executives didn’t provide a dollar figure, only to say that “our product backlog was a record for the year,” and the software backlog was still more than $2 billion, a number reported last quarter. Cisco said in May that their backlog was over $1.5 billion, so it has increased since then.

And while the backlog is growing, Robbins told financial analysts that things are starting to look better, albeit gradually. “After a challenging April due to the COVID-related shutdowns in Shanghai and the impact on semiconductors and power supplies, overall supply constraints began to ease slightly in the back half of the fourth quarter and continued into early Q1,” he said.

“The decisions we have made and the many actions we have taken over the past two years are helping to improve our resilience and will help offset cost inflation. These actions include adding new suppliers, using alternative suppliers, redesigning hundreds of products to use alternative components with similar capabilities, and targeting price increases, all of which are positioned for the future.

Robbins said Cisco has moved some of the backlog it sees into its firewall portfolio. He also noted that the company’s long-term commitment to growing software subscriptions is working, as recurring subscription-based revenue increased 8%.

Cisco also gave an upbeat forecast for next year, saying it expects sales growth in the range of 4% to 6%, effectively double the forecasts of some financial analysts.

“There are more technological transitions happening at the same time right now than I’ve seen in 20 years,” Robbins said.

“Long-term megatrends such as hybrid cloud, hybrid work, security, IoT, 400Gb and beyond, 5G and Wi-Fi 6, and the shift to application surveillance are likely to provide tailwinds for our growth,” said Robbins. He also noted that the company shipped its first 800Gb Ethernet equipment to a web-scale customer this quarter.

Wider supply chain issues

While there are some bright spots, supply chain issues persist for network providers as a whole.

For example, Arista Networks recently reported its first billion-dollar quarter in its history despite “the challenges of an uncertain supply chain environment,” Jayshree Ullal, Arista’s president and CEO, said during his firm’s second-quarter financial call.

Ullal said the company faces an additional challenge – ordered components become unavailable at the last minute. Inventories increased by $852.8 million in the quarter from $694.2 million in the prior period, the supplier’s CFO said.

“We need all the components to come together, and the component problem continues,” Ullal said. “It was bad in Q1, it’s not better in Q2 and we don’t see it going forward with much improvement in Q3. So maybe in 2023 we will get some relief. But again, to get relief, we need to have all the components. If we are missing one component, we cannot build a system,” Ulal said.

Juniper also said it beat its second-quarter revenue forecast, marking a second consecutive quarter of double-digit annual product revenue growth, according to CEO Rami Rahim. But he said the company is still grappling with supply chain and cost issues to keep the product line full.

Juniper’s backlog has increased by more than $250 million in consecutive quarters, bringing the total to about $2 billion. “We also expect backlog to remain at high levels for the rest of the year,” Ken Miller, Juniper’s CFO, said on the latest second-quarter financial call. “Every quarter seems to be a different challenge. But we seem to be doing a pretty good job, I think, of addressing those challenges,” Rahim said.