Cisco (CSCO) expects software business to generate revenue

During its Investor Day, Cisco CSCO provided optimistic revenue projections thanks to continued momentum in the software and subscription industry. The company expects to report a 5-7% CAGR for revenue through fiscal 2025.

Cisco expects emerging trends such as hybrid cloud, web scale, WiFi 6 and 400G, hybrid working, cloud security, 5G deployment, full stack observability , the Internet of Things (IoT) and edge computing will drive the company’s revenue in the coming days.

Cisco is focused on building a cloud-first, application-centric solution portfolio to provide customers with end-to-end solutions to accelerate digital transformation. The company is also focused on increasing revenue from software and subscription services. Subscriptions ensure a steady stream of income.

The company noted that software and services revenue contributed 53% of total fiscal 2021 revenue. For the fourth quarter of fiscal 2021, software revenue increased 6% to 4 billions of dollars. Software subscription revenue increased 9%. Subscriptions contributed 81% of Cisco’s software revenue in the latest reported quarter. Performance obligations (“RPO”) remaining at the end of the fourth fiscal quarter were $30.9 billion, up 9%.

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Going forward, the company will report revenue around six new product categories: Secure Networks, Agile, Optimized Application Experiences, Hybrid Work, Internet for the Future, End-to-End Security, and Edge Capabilities. Currently, the company reports revenue in the Infrastructure Platforms, Applications, Security, and Other Products categories.

Cisco also highlighted its commitment to reducing greenhouse gas (GHG) emissions. The company is striving to achieve net zero for GHG emissions by 2040 and net zero for global scope 1 and 2 emissions by 2025.

Many opportunities for Cisco

Cisco is an IP-based networking company that provides products and services to service providers, enterprises, commercial users, and individuals.

The strength of the company’s Catalyst 9000 and Nexus 9000 switching solutions is driving the company’s revenue. Accelerated 5G deployment, growing adoption of Wi-Fi 6 products and increased demand for Meraki solutions are key enablers.

The acquisition of Acacia will help Cisco expand its portfolio of optical systems, particularly coherent optical solutions to support its “Internet for the Future” strategy.

The pursuit of remote working and the adoption of a flexible working model bodes well for the company’s business communications platform, Webex. In the last reported quarter, recurring subscription revenue for Webex increased 9% year-over-year.

The company is constantly adding new features to the Webex suite to solidify its competitive position against companies like Enlarge video ZM and Microsoftof the MSFT Teams app.

Cisco’s security solutions portfolio is enjoying continued traction in cloud-based security and Zero Trust offerings, as well as strong momentum for Duo and Umbrella solutions. The company’s end-to-end differentiated approach across network, cloud and endpoint is helping it expand its customer base. The company is seeing healthy adoption of identity and access solutions, advanced threats, and unified threat management solutions. Recurring subscription revenue for the Security business increased 13% year-over-year in the most recently reported quarter.

During the fourth quarter fiscal 2021 conference call, management warned that ongoing component shortages, supply chain issues and resulting higher costs would continue into the first half of the fiscal year. fiscal 2022 and could continue into the remaining half. Low demand for servers is another concern, along with fierce competition from Arista ANET and Juniper in the field of network infrastructure.

Over the past year, Cisco shares have returned 42.6% compared to industry growth of 41.8%.

Currently, Cisco carries a Zacks Rank #3 (Hold). You can see the full list of today’s Zacks #1 (Strong Buy) ranking stocks here.

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