Cisco CEO Robbins: Partners Drive Digital Transformation Success

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Fresh from reporting Cisco Systems' biggest sales quarter ever, Chairman and CEO Chuck Robbins says the strength of the networking giant's channel partners accounts for the lion's share of the company's success in its transition to a software-focused, recurring revenue-based strategy.

About a third of Cisco's total revenue is now realized on a recurring basis, and in an interview with CRN, Robbins said the company, which does about 85 percent of its total business through the channel, relies on its partners just as heavily to drive that recurring revenue growth.

"There's no difference between that and the rest of our business," Robbins said. "One of the things we talk to our teams about is that as we make this transition to more SaaS and software subscription offers, I've told them I don't know how you're going to do it, but you're going to do it with our partners."

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Robbins' personal commitment to the channel lines up neatly with what he called partners' resilience in the face of sweeping, fast-paced changes taking hold in the industry at large. In fact, Robbins said, partners play a key role in how Cisco addresses those market changes.

"We work so closely with our partners that they actually help us define the programs we need to actually make this work," Robbins said. "We don’t go off in rooms and come out and unveil something that hasn't been vetted pretty deeply with a strategic set of partners to make sure we get it right. We won't always get it right. When we don't, we fix it."

Partners, Robbins said, have shown "that there's clearly an understanding that as the market changes they have to evolve their business models… The business model and the offer type is something new, but they've shown the same level of resilience in making that transition."

Cisco's transition to a more software- and subscription-oriented strategy puts its partners in an ideal position to capitalize on customers' desire to establish, expand and accelerate multi-cloud and hybrid-cloud-based digital transformation initiatives around intent-based networking, network analytics and security, Robbins said.

"It really gives our partner community an opportunity for entirely new profit streams, and frankly, new opportunities to drive their own intellectual property on top of the platforms, which is another way they'll maintain sustained profitability for the long term," Robbins said.

Recurring revenue as a percentage of total revenue was 32 percent in the fourth quarter, an increase of about 1 percent year-over-year. Revenue from subscriptions now makes up 56 percent of the San Jose, Calif.-based company's total software revenue, up 5 points from a year ago.

Cisco's Catalyst 9000 subscription-based switching platform illustrates the company's influence in the digital transformation market, as well as its partners' traditional strength in the sales trenches. The Cat9k, as it's called, is the company's fastest-ramping product ever and has won over some 9,600 customers since its launch a little over a year ago.

The Catalyst 9000 and other new products and capabilities in Cisco's core enterprise networking business also help partners as they transition to a more software-centric strategy, Robbins said.

"The great opportunity for us and our partners is that we've created innovation in our core enterprise networking franchise," Robbins said. "We're bringing out next-generation access points, we've got the Catalyst 9000, we have an automation platform, we've got analytics coming out of the network. That's a large-scale franchise. At the same time, we're offering more subscription offers, more SaaS offers. What we've done is we've created a good combination of these next-generation software offers, but also some volume innovation so you can balance. You're still getting the growth while we're making the transition."

Cisco partners say they've either grown recurring revenue business in line with Cisco, or expect to see strong, double-digit recurring revenue growth over the next couple of years.

"Our numbers don't look anything like that yet, but I do expect sharp increases over the next two years," said Mike Girouard, senior vice president of sales at TekLinks, a Birmingham, Ala., solution provider that works with Cisco. "I can see our Cisco revenue reaching one-third recurring in the next two years, and we're more like 5 percent now."

Kent MacDonald, vice president at Long View Systems, a Toronto solution provider that works with Cisco, said Long View's revenue reached about a third recurring right along with Cisco's, and the company considers that portion of its Cisco business to be its most promising.

"We've been seeing success with Cisco recurring revenue and software, and we anticipate these to be our biggest growth areas with Cisco," MacDonald said. "Our expectation is these trends will accelerate over the next year or two."

Cisco Wednesday reported fourth quarter revenue of $12.8 billion, up 6 percent year-over-year, and a quarterly profit of $3.3 billion, up 8 percent. The company said it expects first quarter revenue to show growth between 5- and 7 percent year-over-year.

Cisco’s stock rose more than 6 percent to $46.59 in after-hours trading on Wednesday.