Cisco revenue up 8%, but firm issues soft guidance on supply challenges

Cisco Systems saw revenue jump across its networking equipment-related businesses during its fiscal first quarter of 2021. But like other technology companies, it’s facing a near-term future in which healthy demand is going to out-pace meager supply, due to shortages of chips and other materials.

For the fiscal first quarter, the company reported $12.9 billion in revenue, about $1 billion more than the same quarter last year. Growth was driven by a 46% surge in revenue from Internet for the Future networking products and a 10% increase in sales in its Secure Networks unit. Meanwhile, revenue in Cisco’s Hybrid Work unit, which includes Webex, dropped by 7% year-over-year and sales in other services-related areas achieved only about 1% growth in revenue compared to last year.

Regarding the growth in the Internet for the Future segment, Cisco CFO Scott Herren said, according to the Motley Fool earnings transcript, “We saw broad strength in the portfolio with growth in cloud, growth in core with strength in both Cisco 8000 and NCS 5500, and growth in edge with the ASR 9000. We also saw benefits from our acquisition of Acacia. Optimized application experiences was up 18%, driven by both ThousandEyes, which grew triple digits, and Intersight, which grew in the strong double digits.”

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This segment went a long way toward helping the company achieve 8% year-over-year revenue growth that Herren said was in-line with previous guidance, although it narrowly missed analyst estimates, according to other published reports. More concerning for Cisco watchers was the firm’s revenue outlook for the fiscal second quarter of 2022, for which he said revenue growth will likely fall in the range between 4.5% and 6.5%, well below the 8% analyst consensus.

Herren said a complex set of overlaying supply chain challenges continues to linger, and that it's hard to nail down timing for recovery because “it's not just one commodity that's constrained… you have to square the sets across multiple commodities that are all constrained. And then you have to overlay on that the snarled logistics position that we find ourselves in really across all lanes, whether it's ocean or air or trucking.”

Cisco CEO Chuck Robbins, when asked about customer reaction to Cisco’s recent product price increases, as well as the supply chain delays, said customers are generally understanding about increasing prices but that they “are super frustrated with the lead times. We have situations that we need to deal with specific customer issues around budgets, etc., our teams handle that specifically with the customers. But in general, I think that they understand. And many of our customers are doing the same thing to their customers. So this is the whole inflationary trend that we see across the entire economy.”

Edward Jones analyst David Heger wrote in a research note, “Cisco delivered decent year-over-year revenue growth, although it fell short of the consensus due to supply-chain constraints. The company is seeing strong demand, with 33% product-order growth during the quarter, which accelerated from 31% order growth in the previous quarter, but supply-chain issues constrained production and deliveries. We anticipate that these challenges will continue in the near term, but Cisco is building a strong backlog of orders against which it can deliver for the next few quarters.”

He added that Edward Jones believes Cisco will be able to find its way through the current challenges to deliver future earnings growth.