Cisco targets $900 billion TAM in quest for growth

Cisco
All told, Herren said the company expects to achieve a compound annual growth rate of between 5% and 7% from its fiscal 2021 through fiscal 2025. (Cisco)

Cisco executives revealed the company is chasing what it believes to be a $900 billion total addressable market (TAM), positioning itself to capitalize on trends around software as a service, cloud, edge and automation to drive growth in the coming years.

During an investor day event, Cisco EVP and chief strategy officer Liz Centoni said the company addresses a market worth nearly $260 billion today and is “actively moving into several large and expanding markets” to boost its TAM to around $400 billion by 2025. Expansion markets include secure and agile networks, hybrid work, end-to-end security, internet of the future and applications, she said.

Centoni added it sees an additional $500 billion TAM opportunity to address markets “adjacent to where we play today,” including the future of work and automation.

“We have market transitions as tailwinds, we have cloud as a growth driver, we’re building product to address our customers’ key needs, expanding our user base. We’re making this big investment as we believe we have a massive market opportunity ahead of us,” she stated.

Cisco EVP and CFO Scott Herren noted the company’s software revenue has already grown from $8.4 billion in fiscal 2015 to $15 billion in its fiscal 2021, with subscription-based software revenue jumping from $3.4 billion to $11.9 billion over the same period.

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He said as the company continues to evolve to serve the aforementioned markets, it will begin reporting a new set of metrics including software revenue, subscriptions as a percent of total revenue, annualized recurring revenue and remaining performance obligations.

All told, Herren said the company expects to achieve a compound annual growth rate of between 5% and 7% from its fiscal 2021 through fiscal 2025.

Analysis

Moor Insights and Strategy senior analyst Will Townsend told Fierce “the addressable market upsides that the execs spoke to” were the biggest takeaway from the presentation. He highlighted executive comments about a $100 million TAM opportunity for its core networking business, stating this is “an aggressive target, but could be achievable.”

Roy Chua, founder and principal at research firm AvidThink, added that throughout its presentation Cisco stressed a shift toward flexible consumption of its products in an apparent attempt to “make sure no one would miss that ‘on demand model’ message.”

But Chua questioned assertions from executives that Cisco’s products “can be relevant to hyperscalers even with their proprietary mindset.” He explained “I'm mixed — it's great they have a play there but with major networking investment (and IT overall) still favoring cloud transition, there's a shift away from large enterprise networking iron. Plus, it's not clear how Cisco will continue to handle ongoing disaggregation in networking — beyond pushing management simplicity and enterprise agreements (EA) to drive membership mindset.”