Cisco CEO expects supply chain constraints to continue into 2022

Supply chain issues continue to plague many tech firms and Cisco CEO Chuck Robbins said he isn’t sure when things will improve. Speaking on the company’s fiscal 2Q 2022 earnings call with investors, Robbins said that Cisco doesn’t “have a great timeline” for when supply chain issues will be resolved and the company expects to continue to have supply chain constraints in the second half of Cisco’s fiscal year.

CFO Scott Herron added that he believes chain issues will not suddenly be resolved but will just gradually improve over the next few quarters, making it difficult for companies like Cisco to manage customer expectations. Nevertheless, Cisco customers are responding to the company’s warnings of lead times and putting in their orders early, Robbins said.

Other than supply chain issues, Cisco had a strong quarter across all its customer and geographic segments. The company reported fiscal 2Q revenues of $12.7 billion, a 6% increase year-over-year. Product revenue was up 9% and service revenue was down 1%.  The company also reported $3 billion in net income, up from $2.5 billion in the same quarter in fiscal 2021.

Cisco’s Secure, Agile Networks business segment, which includes data center networking switches, accounted for $5.9 billion in revenue for the quarter, a 7% increase year-over-year.

The company’s Internet of the Future segment, which includes its optical networking business and its public 5G business, accounted for $1.32 billion in revenue, up 42% year-over-year.

Robbins attributed much of Cisco’s strength in the quarter to its being on the “front end” of several key technology trends, including 400 Gigabit Ethernet (GbE), 5G, Wi-Fi 6, hybrid cloud, hybrid work and edge computing.

The company’s End-to-End Security business segment was up 7% and its Optimized Application Experiences was up 12%. The Hybrid Work segment was down 9%.

Robbins said that Cisco has almost 700 customers upgrading to 400 GbE and the company has taken orders for 737,000 ports. “400-Gig has certainly taken off,” he said, adding that Cisco is also benefiting from other major transitions such as enterprises upgrading to Wi-Fi 6 and service providers transitioning to 5G.

Robbins also said that the company is seeing many of its enterprise customers densify their Wi-Fi networks and adding “more and more access points per workspace” than they had pre-COVID. In addition, many companies are adding video units in their conference rooms, which is causing them to need a more robust switching infrastructure in their offices.

Cisco executives said the company is seeing robust order demand and in the second quarter it saw product orders increase 33% year over year. “This is our third consecutive quarter of order growth of 30% or higher with momentum once again across all geographic regions and customer markets,” Robbins said.  

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In the Service Provider market, the company said that orders from webscale customers were up more than 70% year-over-year and this segment was primarily driven by the adoption of its 400 GbE solutions and optical networking products.

However, Robbins added that besides the webscale customers, Cisco also saw significant strength in the telco space and said that group of customers contributed to the company experiencing 42% year-over-year growth in product orders in the service provider market.  

Splunk acquisition rumors

When asked about last week’s Wall Street Journal report that Cisco was attempting to acquire data analytics firm Splunk for more than $20 billion, Robbins said that the company wouldn’t comment on the rumored deal.  

“But what I will tell you is that we are constantly evaluating potential opportunities,” he said, adding that Cisco’s executive team looks at anywhere from 10 to 15 different companies for every deal that they do. “We base our decisions on first and foremost strategic fit, secondly cultural fit, and equally as important, the financial and valuation fit,” he added.