Cisco Breaks Into Record Backlog As Software, Subscriptions Post Double-Digit Growth

‘As we ship our backlog, we will be gaining share,’ Cisco CEO Chuck Robins says during the tech giant’s Q2 2023 earnings call that highlighted Cisco’s software and subscription business transformation progress that was aided by a loosening supply chain.

Cisco is making strides on its business transformation away from hardware, especially as the global supply chain loosens and the company is able to chip away at its robust order backlog, according to Cisco Chairman and CEO Chuck Robbins.

Cisco’s “great progress” in favor of software and subscriptions led to its total annual recurring revenue (ARR) climbing 6 percent year-over-year to $23.3 billion. Both total software revenue and software subscription revenue grew 10 percent and 15 percent year over year, respectively, and 84 percent of software sales were subscription-based during the company’s fiscal Q2 2023, Robbins told investors during the company’s earnings call on Wednesday evening.

The company was able to draw down its once record-breaking backlog by 6 percent sequentially, thanks in part to Cisco’s channel partners who were able to get solutions into the hands of customers, a process that has been held up by the previously uncooperative supply chain, Robbins said.

“We increased product deliveries and saw significant reductions in customer lead times. As product delivery increased, channel inventories also declined as partners were able to complete customer projects,” he said. “As we continue to ship our backlog, we will be gaining share.”

San Jose, Calif.-based Cisco disclosed that it still has $2 billion worth of software orders in product backlog.

[Related: Cisco’s Chuck Robbins On XaaS: We ‘Realized We Weren’t As Operationally Ready’]

During its second fiscal quarter of the year, Cisco’s Secure, Agile Networks segment, which includes the core switching and routing businesses, posted revenues of $6.75 billion during the quarter, a whopping 14 percent incline compared to Q2 2022’s result. The Secure, Agile Networks segment has been significantly impacted by supply chain constraints in the past, but this quarter, the segment was buoyed by strength in the company’s popular Catalyst and Meraki product lines, as well as SD-WAN and IoT routing, said Cisco CFO R. Scott Herren.

Cisco’s Catalyst line can now be managed via the Meraki dashboard, one of Cisco’s more popular portfolio updates announced last year.

Cisco’s product revenues, which was led by Secure, Agile Networks segment, climbed 9 percent and service revenues increased by 2 percent during Q2 2023, said Herren.

Cisco’s End-To-End Security segment posted 7 percent growth during the second quarter of $943 million, which Herren attributed to strength in the company’s zero-trust and unified management security approach.

Cisco’s struggling Collaboration segment declined 10 percent year over year to $958 million in revenue compared to Q2 2022, which the company attributed to declines in Meetings and collaboration devices, slightly offset by growth in Contact Center. Robbins last quarter took to the company’s earnings call to confirm plans to “rebalance” certain business units, which included Cisco’s Collaboration segment. The round of layoffs that took place in November following the earnings call included about 5 percent of the company’s workforce.

Cisco’s Internet for the Future segment, which includes the company’s telecommunications, cloud, and optical networking products, declined 1 percent year over year with revenues of $1.31 billion, driven by declines in the company’s Optical and Edge businesses. Cisco’s Webscale business, on the other hand, saw double-digit growth during the quarter, according to Herren.

For Cisco’s fiscal Q2 2023 which ended January 28, Cisco’s revenue climbed 7 percent to $13.59 billion compared to the same period a year ago. Cisco posted non-GAAP earnings per share of 88 cents, a 5 percent increase compared to a year ago and non-GAAP net income of $3.6 billion in the second fiscal quarter of the year.

Recurring revenue now makes up 44 percent of the once-hardware-focused tech giant’s annual revenue, a figure that climbed 6 percent during Q2 2023, Robbins said.

Cisco’s stock was up 1.57 percent in after-hours trading Wednesday to $48.45.