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Cisco earnings, revenue up as sales rise across product lines

Cisco earnings and revenues grew in the quarter ended Oct. 27 as sales increased across product lines, geographies and customer segments.

Antone Gonsalves
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Published: 16 Nov 2018

Cisco reported this week a strong fiscal first quarter as an increase in sales across its product lines contributed to an 8% rise in overall revenues.

Revenues for the quarter ended Oct. 27 reached $13.1 billion, marking the company's fourth consecutive quarter of year-over-year growth, following eight quarters of decline. Cisco earnings, or net income, on a GAAP basis rose 48% to $3.5 billion.

Revenue from Cisco's most significant product line -- infrastructure platforms - increased 9% to $7.6 billion. The category includes its switches and routers. Also, application sales rose 18% to $1.4 billion, and security revenue increased 11% to $651 million.

"We saw broad-based growth across all of our geographies, product categories, and customer segments," Cisco CEO Chuck Robbins said in an earnings call with analysts. Cisco expected revenue to grow by 5% to 7% in the current quarter ending in January.

Robbins highlighted growth in sales of the Catalyst 9000 and Nexus 9000 campus and data center switches, respectively. Driving the increases was customer acceptance of Cisco's intent-based approach to networking that is dependent on software.

The Catalyst 9000, introduced last year, fits squarely into Cisco's software-centric strategy. The hardware is the first from Cisco that requires a software subscription on top of the price of the gear. Robbins has said the Catalyst 9000 is the company's fastest-selling product ever.

At its Partner Summit in Las Vegas this week, Cisco broadened the market for the Catalyst 9000 with the introduction of the entry-level 9200 aimed at the midmarket and branch office.

The increase in Nexus hardware revenue came despite enterprises buying fewer data center switches overall, as they migrate an increasing number of workloads to IaaS providers, such as AWS, Microsoft Azure and Google Cloud.

"I'm not sure how sustainable that is," said Frank Marsala, an analyst at Gartner, of Nexus 9000 sales. "I didn't hear anything specific [on the Cisco earnings call] about what drove the Nexus 9K, which I thought had stalled out."

Revenue up from service providers

Cisco also reported revenue growth from routers, driven by a 2% increase in sales to cloud and communications service providers. The increase included "a couple of big wins" in Asia, Robbins said.

Cisco rivals Juniper Networks and Nokia reported a decline in router sales in their latest financial reports, due to weak sales to service providers. Worldwide, spending by the market segment was "not good," and Cisco might not be able to sustain growth in routing next quarter, Marsala said.

Cisco and its competitors are helping service providers rearchitect their data centers in preparation for delivering 5G applications and services that the current generation of wireless technology can't provide. Robbins, however, did not expect a significant increase in revenue from that work over the next few quarters.

"I still believe it will be calendar 2020 before we see anything if we're looking for some broad-based movement," he said.

Impact of U.S. tariffs on China

During the October quarter, Cisco did not feel any impact from the 10% tariff the Trump administration imposed on some Chinese goods, including switches and routers Cisco makes in China and imports to the United States. The administration imposed the tax in September as a result of its trade war with China.

Despite raising prices to cover the tariff, Cisco did not hear complaints from customers. "I haven't had one conversation with any customer around tariffs at this point," Robbins said.

That could change next year, however. Economists say the negative impact of tariffs could be more damaging in January if the administration doesn't reach a trade deal with China and follows through on its promise to raise tariffs to 25%.

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