Cisco preps price increases as chip shortage drags on

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Moor Insights and Strategy founder and principal analyst Patrick Moorhead said the increases could impact products across the board. (efetova/iStock/Getty Images Plus/Getty Images)

Cisco CEO Chuck Robbins revealed the company is preparing to raise prices on certain products in light of ongoing inflation caused by a global chip shortage that is expected to persist into next year.

Responding to analyst questions about the situation on Cisco’s fiscal Q3 2021 (ended May 1) earnings call, Robbins said the company had already “made some decisions on certain products that we will be making price increases on.” He added it was “looking surgically at the rest of the portfolio based on where we have costs that we believe are going to be sustained.”

“But we're erring hard right now on taking care of our customers and trying to optimize our ability to deliver to them right now because we think that improves our relationships, and it improves our position over the long term with these customers,” the CEO continued.

While Robbins did not specify which products it was planning to raise prices on, Moor Insights and Strategy founder and principal analyst Patrick Moorhead told Fierce, “I can see this happening on routing, Wi-Fi and Webex optimized collaboration products. So, across the board.”

RELATED: Gartner targets chip supply normalcy by 2Q22

Earlier this month, analyst firm Gartner predicted the ongoing chip shortage would continue through 2021, with supply mostly returning to normal levels by Q2 2022.

Metrics

Net income in the quarter was up 3% year on year to $2.9 billion. Revenue rose 7% to $12.8 billion and was comprised of $9.1 billion in product revenue and $3.7 billion in services revenue. By product segment, Infrastructure Platforms revenue of $6.8 billion was up 6% year on year, with Applications up 5% to $1.4 billion and Security up 13% to 876 million.

During the call CFO Scott Herren offered deeper insights into Cisco’s Infrastructure Platforms performance, highlighting an increase in switching revenue thanks to “growth in campus driven by strong double-digit growth of our Catalyst 9000 products.” He also pointed to “strong double-digit growth” in its routing business thanks to strength in the service provider market, and robust growth in wireless due to the continued ramp of Wi-Fi 6. However, Herren said data center revenue declined, attributing this primarily to a drop in server revenue related to “continued market contraction.”

RELATED: Cisco unveils Routed Optical Networking solution

Robbins said Cisco recorded double-digit growth across all of its service provider sub-segments, including cable, carrier and web scale players. He noted the company’s web scale business in particular posted its sixth consecutive quarter of order growth, which he said was up more than 50% on a trailing 12-month basis.

“Our web scale customers are starting their 400-gig upgrade cycles and aggressively pursuing long-haul build-outs, while our carrier customers are exploring new architectures to realize the full potential of 5G,” the CEO said.

He continued, “We didn't play in the web-scale space five years ago…and now we’re seeing that was almost a quarter of our service provider business again this quarter and is still growing robustly.”

Moorhead highlighted one other “impressive” metric from Cisco’s report, noting the company “is on track for $14 billion in software annual run rate” revenue. On Twitter, analyst Zeus Kerravala of ZK Research pointed out this figure makes Cisco the fifth largest software company.

For the current quarter, Cisco forecast overall revenue to grow between 6% and 8% year over year.