Cisco shrinks: Revenue, profit and margin all dipped in Q2 2017
Big headaches in big iron, hyper-servers aren't taking off, but software biz all smiles
Get out the pen, walk to the whiteboard, and draw lines heading downwards: Cisco's Q2 2017 results showed year-on-year falls in revenue and earnings, and a router business close to free-fall.
Cisco shed two per cent of quarterly revenue year-on-year, from US$11.8 billion to $11.6 billion, which was at the better end of its guidance of a dip between two per cent and four per cent.
Net income, however, slid by 25 per cent, from $3.1 billion in Q2 2016 to $2.3 billion for the quarter just reported. Product prices are also getting squeezed, with the company saying product margin slipped from 61.3 per cent to 61.1 per cent.
Putting the best face on things, CEO Chuck Robbins highlighted the transition to software as part of the strategy for a future turnaround, with 51 per cent growth in recurring revenues.
Kramer said about two-thirds of the software growth came from collaboration, security, and wireless (Meraki) offerings, but all software segments were growing “double digits across the board”.
Cisco's giant whiteboard, Spark, was held up by both Robbins and CFO Kellly Kramer as the exemplar of the software strategy, since it ships with a substantial per-unit cloud subscription ($190 per month).
However, even with Spark software growth is not yet enough to offset what's happening in Switchzilla's core business. Ignoring the now-divested service provider video business, the big slips were in switching (revenue down five per cent to $3.3 billion), NGN routing (10 per cent down to $1.8 billion) and data centre systems (down four per cent to $790 million).
On the data centre server business, Robbins said the company hopes upcoming “hyperconverged” offerings should boost that segment, and hinted that the segment is under constant review.
“We would like to see it moving more quickly,” he said, adding that it's looking “at broad strategy in the data centre.”
There are some ups: Collaboration rose four per cent year-on-year to $1.06 billion, wireless rose three per cent to $632 million, and security added 14 per cent to $528 million.
Kramer told the earnings call guidance for the next quarter is between flat and another twi per cent revenue decline.
Another disappointment so far, although not given a number, has been the year-long partnership with Ericsson, but Robbins said he wants that partnership to accelerate when he next meets with new Ericsson CEO Borje Ekholm at Mobile World Congress this month.
Kramer also noted that DRAM costs are hitting everyone, with “very tight supply” causing dramatic increases.
Kramer and Robbins were both tight-lipped about the details of the product failures allegedly caused by Intel's Atom chip-clock slip, saying only that the company's working “proactively” with customers, and doesn't expect it to cause a significant financial fallout. ®