Cisco is seeing a positive return on its evolving revenue strategy

Cisco CEO Chuck Robbins says that the company will be blending its SD-WAN platform into the rest of its portfolio early next year. (FierceTelecom)

Cisco's move to more software and subscription-based revenues is starting to pay off.

Cisco released its fiscal first-quarter earnings late Wednesday afternoon, and profits beat analysts' expectations as its revenue increased for the fourth straight quarter. As a result of the bullish earnings report, Cisco shares were up roughly 4% in early-morning trading.

Cisco's earnings came in at 75 cents per share—up 23% from a year ago—while analysts had projected 71 cents per share. Wall Street analysts had projected revenue of $12.89 billion, but Cisco reported $13.1 billion. Cisco benefited from lower corporate taxes in the first quarter.


Like this story? Subscribe to FierceTelecom!

The Telecom industry is an ever-changing world where big ideas come along daily. Our subscribers rely on FierceTelecom as their must-read source for the latest news, analysis and data on the intersection of telecom and media. Sign up today to get telecom news and updates delivered to your inbox and read on the go.

"We delivered another great quarter," said Cisco Chairman and CEO Chuck Robbins, according to a Seeking Alpha transcript of last night's earnings call. "It is absolutely clear that the strategy in transformation that we laid out three years ago is working. We accelerated revenue growth, expanded margins and generated strong operating cash flow and double-digit earnings per share growth."

Technology Business Research Analyst Michael Soper wrote in a report that while Cisco was starting to find traction in its move from hardware-based revenues to software and subscription-based revenues, there's still robust demand for Cisco's routers and switches. Cisco's intent-based networking strategy is driving demand across portfolios within the infrastructure platforms segment to spur revenue and margin growth, according to Soper.

Cisco's enterprise product orders were up 15% year over year, while public sector and commercial each increased 8% and Cisco's service provider orders increased by 2%.

"TBR believes service provider demand will be inconsistent and enterprise routing hardware demand will ebb as SD-WAN adoption rises," according to Soper. "This will gradually erode margins, but Cisco is already capturing SD-WAN demand with its Viptela offering, which will partially offset this trend."

Cisco announced this week that it had integrated some of its security portfolio into its Meraki and Viptela SD-WAN offerings. Robbins said that Cisco would be integrating its SD-WAN platform across more of its portfolio in the spring of next year, according to the Seeking Alpha transcript.

RELATED: Cisco ties security capabilities into SD-WAN platform

"I think when you see the enterprise business, the consistency we've seen over the last few quarters, I think SD-WAN is a big part of that," Robbins said on last night's earnings call, according to the Seeking Alpha transcript.

Soper said that Cisco was experiencing little negative impact from tariffs and currency depreciation, but tariff increases of 25% would impact Cisco going forward, especially if it follows through on passing those increases on to its customers.

Cisco expects a range of 5% to 7% revenue growth year over year for its second-quarter fiscal year 2019. Adjusted earnings per share is projected to be in the range of 71 to 73 cents.

"Macroeconomic trends can have a significant effect on demand for Cisco’s products as companies are unlikely to invest in upgrading network gear in difficult economic environments," Soper said. "Cisco is weathering U.S. tariffs on China-produced goods and depreciating currencies in emerging markets, however, and reporting no ill effects on its business.

"Despite the strong dollar and weakening currencies within several key emerging markets, Cisco reported revenue and product order growth across all geographies, including 50% year-to-year revenue growth in India. Cisco’s total emerging markets product orders grew 16% year-to-year and Brazil, Russia, India, China, South Africa and Mexico orders surged 19%, indicating demand for Cisco products will withstand weakened purchasing power."

Suggested Articles

IBM has named internship and mentor program Outreachy as the winner of its second $50,000 Open Source Community Grant.

While carriers have kept up with the networking demands related to the COVID-19 pandemic, Vodafone is upgrading its network by 4 TBps of capacity.

According to revised research by International Data Corporation (IDC), worldwide IT spending is now expected to decline by 2.7%.