Supply chain improvements, AI demand propel Cisco earnings

Networking giant Cisco’s final quarter of fiscal 2023 was a surprising success, as an easing of the supply chain crisis enabled the company to fulfill back orders and increase quarterly revenue by 16% year over year, reaching a total of $15.2 billion.

Cisco’s said that total software-related revenue was up 17% year on year, and revenue from software subscription services rose 20%. That’s part of what the company refers to as its business model transformation, as slack overall demand for collaboration technology resulting from the easing of the pandemic creates the need for Cisco to target new types of business.

Net income for the quarter jumped 41% year over year to $4 billion.

CFO Scott Herren said in this week’s earnings call that the fourth quarter numbers reflect a measure of success in that effort.

“We continue to make progress on the transformation of our business to more recurring revenue-based offerings driven by higher levels of software and subscriptions,” he said, according to an earnings call transcript from the Motley Fool.

One business area in which the company says it has had some new success is in AI, with chairman and CEO Chuck Robbins stating in the earnings call that they had taken $500 million in orders for AI Ethernet fabrics. Demand there is being driven by the major cloud hyperscalers, according to the company.

“We have definitely seen traction in this space, lots of discussions, lots of architectural discussions, lots of input from those customers on what they’d like to see in the next generation of silicon, as an example,” Robbins said. “There’s going to be more and more purpose-built silicon over the next couple of years, and the teams are working on that.”

It could take some time to realize profits from those sales, however, with Herren saying that roughly six months could elapse before they show up in Cisco’s profit/loss statements.

Cisco’s core enterprise networking business gained market share in the quarter, according to the earnings call — both enterprise and data center switching gained “double-digit” percentage points in overall revenue. The company also saw strong demand for optimized application experiences, seen mostly in its ThousandEyes and AppDynamics subsidiaries.

Cisco’s acquisitions in the fourth quarter highlight both the application delivery sector and the aggressive move into the AI space — the company acquired cloud security provider Lightspin, product analytics and digital experience solution vendor Smartlook, and Armorblox, which focuses on issues of natural language processing and the use of large language models in cybersecurity.