Cisco: Service Provider Revenues Grow, but the 5G Bonanza Is Yet to Come

Cisco CEO Chuck Robbins said he expects to see some 5G sales a year out, with a significant payoff in 2020.

Mitch Wagner, Executive Editor, Light Reading

August 15, 2018

4 Min Read
Cisco: Service Provider Revenues Grow, but the 5G Bonanza Is Yet to Come

Service provider revenue is growing again for Cisco, but look for continued fluctuations, CEO Chuck Robbins said on the company's earnings call Wednesday.

And look for big 5G payoffs to start for Cisco Systems Inc. (Nasdaq: CSCO) in 2020. Right now, service providers are just starting to seriously discuss their 5G needs, Robbins said.

Overall, Cisco executives and investors were virtually certainly smiling about the results for the quarter ending July 31. Revenue was a record $12.8 billion, up 6% year-over-year. The company continues its steady march toward increasing recurring revenue, pivoting from a historical focus on one-time hardware sales; recurring revenue for the quarter was 32% of total revenue, up one point year-over-year. Software subscriptions were more than half of overall software revenue: 56%, up five points year-over-year. (See Cisco Q4 Revenue Up 6% YoY to $12.8B and Cisco: Enterprises Will 'Spend Differently'.)

Non-GAAP earnings per share for the quarter were $0.70, up 15% year-over-year.

For the year, revenue was $49.3 billion, up 3%, and non-GAP EPS was $2.60, up 9% year-over-year.

Figure 1:

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Cisco cited growth across the company driving revenue increase.

The company stock traded at $46.52, up 6% after hours Wednesday.

Service provider product orders were up 6% year-over-year in the fourth quarter, with enterprise up 11%. However, Robbins cautioned that quarterly fluctuations are likely, as Cisco relies on big customers in that sector.

"This is a business that is dominated by large customers," Robbins said. "When we have several of them that are slowing their spending, it looks bad, and when we have several of them that are spending, it looks good."

Yvette Kanouff, head of the company's service provider business, announced her departure last week, with Jonathan Davidson, senior vice president and general manager of the service provider networking unit, to lead Cisco's SP business in the future. The service provider segment was down 4% in fiscal Q3. (See Cisco's Top Service Provider Exec Jumps Ship and Cisco: Revenue Slump? What Revenue Slump?)

In response to a question from an analyst, Robbins said Cisco just started at Mobile World Congress in February to see "earnest" discussion from service providers of how to get their networks ready for 5G. He said he expects to see some 5G sales a year out, with a significant payoff in 2020.

And Robbins cautioned against using the historic transition to 3G and 4G as a guide to what to expect from 5G. 3G and 4G sped up the performance of existing devices, but 5G is a fundamentally different architecture, permitting new classes of applications, such as connecting remote and branch offices. Network requirements for 5G will be different.

Security continues to be a strategic, growing, but small part of Cisco's overall revenue. Security revenue was $627 million in the quarter, up 12% year-over-year, for about 5% of total revenue. Cisco cited security as strategic to the company when it acquired Duo Security this month. On Wednesday's call, Robbins cited security as "customers' number one concern" and "a top priority for us."

In another sector for Cisco, infrastructure and platforms drove $7.4 billion revenue, up 7%, though router sales declined slightly.

Cisco expects revenue growth of 5% to 7% year-over-year and non-GAAP EPS of $0.70 to $0.72 for the first quarter of fiscal 2019.

— Mitch Wagner Follow me on Twitter Visit my LinkedIn profile Visit me on Tumblr Follow me on Facebook Executive Editor, Light Reading

About the Author(s)

Mitch Wagner

Executive Editor, Light Reading

San Diego-based Mitch Wagner is many things. As well as being "our guy" on the West Coast (of the US, not Scotland, or anywhere else with indifferent meteorological conditions), he's a husband (to his wife), dissatisfied Democrat, American (so he could be President some day), nonobservant Jew, and science fiction fan. Not necessarily in that order.

He's also one half of a special duo, along with Minnie, who is the co-habitor of the West Coast Bureau and Light Reading's primary chewer of sticks, though she is not the only one on the team who regularly munches on bark.

Wagner, whose previous positions include Editor-in-Chief at Internet Evolution and Executive Editor at InformationWeek, will be responsible for tracking and reporting on developments in Silicon Valley and other US West Coast hotspots of communications technology innovation.

Beats: Software-defined networking (SDN), network functions virtualization (NFV), IP networking, and colored foods (such as 'green rice').

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