Cisco's pivot to software-based revenues was rewarded during its second-quarter earnings report after the market closed on Wednesday.
Despite tariffs, Brexit and challenging currency issues overseas, Cisco CEO Chuck Robbins said on the earnings call that its enterprise customers were showing amazing resiliency as they continued to view technology as a core part of their growth strategies.
This was born out by Cisco reporting a net income of $2.8 billion, or 63 cents per share in the second quarter that ended last month, compared to a loss of $8.78 billion, or $1.78 per share a year ago after Cisco had a charge of $11.1 billion due to new U.S. tax laws.
Cisco's reported non-GAAP earnings of 73 cents per share on revenue of $12.45 billion, which was a 7% increase year-over-year. In the same quarter a year ago, Cisco earned 63 cents per share on sales of $11.9 billion.
Wall Street had projected earnings of 72 cents per share with 12.4 billion. Cisco's shares were up 3% in after-market trading.
"This quarter we again demonstrated that we have built a resilient growth engine that is firing on multiple cylinders," Robbins said on the conference call with analysts. "Our strategy of expanding our portfolio while investing in our core markets in delivering unprecedented innovation for customers and sustainable value for our shareholders.
"We're building the technologies that enhance our customers' new digital capabilities and experiences like never before. With the continued expansion to the cloud, the increasing connectivity of users and devices and the need to secure their enterprises, our customers are facing the most complex and dynamic IT environment we've ever seen. Cisco's intent-based networking architecture helps them navigate this complexity by enabling them to simplify, automate and securely transform their infrastructure."
Over the last 18 months, Robbins said Cisco has been reinventing networking from the ground up to connect every domain of an enterprise
"It's clear that the investments we've made in our core business are paying off," Robbins said. "We're executing well with continued growth in our infrastructure portfolio and strong customer uptake in our Catalyst 9000 family of switches and our SD-WAN offerings."
In the second quarter, revenue in Cisco's application software business increased by 24% to $1.47 billion, which exceeded analyst estimates of $1.35 billion. Cisco reported that 65% of its software revenues came from subscription sales.
Sales in Cisco's infrastructure platform business, which includes the company's traditional routers and switches, increased $6% to $7.13 billion. Cisco's security revenue increased 18% to $658 million while "other products" revenue was down $91 million year-over-year to $22 million. Application revenue was up 24% to $1.5 billion.
Robbins said Cisco was positioned to cash-in on the migration to 100G and 400G services. While Cisco spins its own silicon, Robbins said Cisco would also benefit from its $660 million deal in December to buy semiconductor vendor Luxtera. Luxtera uses silicon photonics to build integrated optics capabilities for webscale and enterprise data centers, service providers and other business verticals.
Cisco said it expects third-quarter revenue to increase 4% to 6 % and for adjusted earnings to come in at 76 cents to 78 cents a share. Cisco's board of directors approved a $15 billion increase to the authorization of the company's stock repurchase program.
Huawei not a concern
Robbins also professed not to be too concerned about Huawei. Despite facing bans in the U.S. and other countries over the use of its 5G gear, Huawei has said its outlook for this year was higher than ever. Robbins said it was difficult to gain market share in China and that China skewed overall market numbers.
"I think our portfolio right now from an innovation perspective, particularly the work that our teams are doing in the SP (service provider) space, and the work that we're doing around the 5G packet core and some of these next-generation platforms that are going to hit the market this year, I would put up our innovation against theirs and anybody else in the world right now," Robbins said. "I think if you look at our performance in EMEA and APJC (Asia Pacific, Japan and China) over the last few quarters that would suggest that we're not only holding our own but we're competing and winning."