The shine on working-from-home has worn off for most people, according to Cisco CEO and President Chuck Robbins.
Speaking on Tuesday's second fiscal quarter earnings call, Robbins said based on the uptake that Cisco has seen for its Wi-Fi 6 offerings, companies are planning to send their employees back to their office spaces by using a hybrid model.
"I think we sort of moved into that phase where people actually struggle mentally," Robbins said during the earnings call, according to a transcript. "People are—they're not enjoying it. One of our employees said to me the other day, 'I don't mind the option of working from home. I don't like being forced to work from home.' And so I really believe it's going to be hybrid where people are going to work from home.
"And everybody is sort of landing here where they work from home three days a week and then work from the office two days a week or vice versa. The question is, what accommodations does that lead to for customers based on employees' concern over space issues, concern over future pandemics or other concern? That's what we just don't know yet. But I do believe, based on what we've seen with Wi-Fi 6, that tells me customers are getting ready. And they're upgrading the wireless infrastructure now."
Robbins said he anticipated Cisco's employees would return to their offices starting in the mid-to late-summer timeframe. In addition to the Wi-Fi 6 upgrades, Robbins said the return to office spaces could also require more switching infrastructure to support the Wi-Fi 6 builds.
"We also believe that every meeting in the future is going to be a hybrid meeting, even when people are back in the office," Robbins said. "You'll have people in the office and you'll have people remote.
"And in order to accommodate that, we suspect most of our customers will be putting video units in every conference room they have, which, again, will also accommodate the hybrid work model but will also drive bandwidth requirements, which could lead to switching infrastructure. So that's the way we see it playing out over the next few months."
Cisco by the numbers
Due, in part, to the lingering impact of the coronavirus pandemic, Cisco's revenues decreased for the fifth consecutive quarter. In the second quarter, Cisco's revenue was $11.96 billion, which was relatively flat from a year ago, but exceeded analysts' projections of $11.92 billion, according to Refinitiv. For the quarter that ended Jan. 23, Cisco's earnings rose 2% to 79 cents per share from a year earlier versus the 76 cents per share that was expected by analysts.
Cisco’s Infrastructure Platforms business revenue, which is its leading product segment that includes its data center switches and routers, was down 3% year-over-year to $6.39 billion in the second quarter. Revenue for switches was flat while revenue from routers and servers decreased.
Cisco's applications unit that includes its Webex video-calling products posted $1.35 billion in revenue, which was surprisingly flat year-over-year and below the FactSet consensus estimate of $1.40 billion.
On the plus side, service provider revenue was up 5% while commercial was up 1%, but the enterprise segment was down by 9%. Robbins said Cisco was starting to find traction with web-scale customers that operate large-scale data centers. Roughly a fourth of Cisco’s service provider revenue came from web-scale clients in the second quarter.
"On the SP (service provider) space, if you look at what we saw in the quarter from an order perspective, we saw positive growth in cable, which represents about 15% of the segment," Robbins said. "We saw triple-digit growth in web scale, which has represented 25% of the segment. And then our telco business was down, and that's roughly 60% of the business.
"And primarily, that is because of where we are in the stages with 5G. We have roughly 35 customers around the world that we're working on 5G solutions with mobile backhaul, with orchestration, with packet core. And so we're just early in that transition. And I think that particular sub-segment of SP will begin to show progress for us as we see the core backbone build-out, as we've been saying over the last few years."
Robbins also commented on the on again, off again deal to buy Acacia Communications. After claims and counter claims in court last month, Cisco and Acacia Communications announced they had settled their differences and are moving forward on their merger, but the price tag increased from $2.6 billion in 2019 to $4.5 billion last month.
Cisco and Acacia were at odds over whether Cisco garnered regulatory approval from China by the deadline last month.
"So on the Acacia thing, I think it's quite clear what occurred," Robbins said. "We didn't have China approval. We thought we did. We didn't have it in time. So we renegotiated the price because our contract with them had expired. And candidly, the performance they put up in the 18 months between our original deal and this deal was pretty astounding, so the price was not out of the question."
With China's regulatory stamp of approval in place, Robbins said the deal is awaiting final approval by Acacia's stockholders, and that he expects it to close in the third quarter.
Going forward, Cisco expects 80 cents to 82 cents in adjusted earnings per share on 3.5% to 5% revenue growth in the fiscal third quarter.
"Looking ahead, we are cautiously optimistic as recent surveys of IT spending indicate year-over-year IT budget growth for calendar 2021," Robbins said.