Cisco’s Software Vision Rises in Q2 as Core Infrastructure Business Lags

Cisco’s saw its mission to transform itself into a software and service subscriptions continue to take hold in its second-quarter as its core infrastructure business continues to struggle.

  • Cisco

Cisco’s mission to transform itself into a software and service subscriptions continue to take hold as its core infrastructure business continues to struggle.

During the second-quarter, Cisco reported $3.6 billion in software revenue, with 76 percent of software revenue sold as a subscription.

Chuck Robbins, CEO of Cisco, told investors during the second-quarter earnings call that the vendor is taking a cautious outlook, particularly as businesses navigate the challenges of dealing with the COVID-19 pandemic.

“Looking ahead, we are cautiously optimistic, as recent surveys of IT spending indicate year-over-year IT budget growth for calendar 2021,” he said. “And Cisco remains well-positioned among CIOs' top forward-looking spending priorities, including network infrastructure, cybersecurity software, as well as cloud migration and cloud infrastructure. We are also mindful and vigilant about the uncertainty of the pandemic and its influence in the market, which is not fully behind us yet.”

The company has set its sights on six areas of focus: network solutions that can be consumed as a service; enabling greater speed, agility and scale of cloud-native applications and DevOps that deliver the best end-user experience; delivering secure access, a safer workplace and the best collaboration experiences; addressing lower latency and higher speeds; on-premises and cloud-based security; and developing new edge capabilities for extending enterprise and carrier networks.

“Building on the strength of our broad portfolio, we are focused on six strategic pillars that will deliver highly secure next-generation architectures with unprecedented insights, automation and visibility,” Robbins said.

Advancing SD-WAN

One area that Cisco is keen on advancing in its cloud and software vision is SD-WAN. In recent years, Cisco has made an aggressive push into SD-WAN by acquiring Viptela and Meraki.

These platforms are not only widely used by large enterprise customers across various vertical segments such as retail and the public sector, but also by large service providers such as Lumen.

Lumen, for one, launched a managed work-from-home solution that uses Cisco Meraki devices. The service provider’s Remote Connect uses a home’s existing broadband service, including those homes that don’t use the telco’s broadband service—to connect to the corporate WANs. Remote Connect customers could use either the Cisco Meraki Z3 router or the more robust Meraki MX64W device.

The vendor plans to further integrate cloud-based security with SD-WAN as well as other services.

“We plan to transition the majority of our portfolio to be cloud-driven, cloud-managed and delivered-as-a-service If we can deliver it from the cloud, we will,” Robbins said. “For example, we are looking at offering SD-WAN plus cloud security as a service along with creating other new solutions. We will also provide simplified end-to-end networking with security, reliability control, and automation, plus seamless on-ramp capabilities to the cloud that no one else can deliver.”

Cisco said its security portfolio offers protection for any workload on any cloud while minimizing the attack surface and automating security policies across an organization's hybrid cloud footprint. This vision extends to Cisco’s secure access service edge framework and Zero Trust architecture, where it has developed a cloud delivered stack across Umbrella, secure internet gateway, Meraki SD-WAN and Viptela.

Robbins said that Cisco is also delivering unified detection and response capabilities built on Cisco SecureX, its well-received cloud native platform.

“Over 5,400 customers are already seeing the benefits of this platform since it became generally available last June,” he said. “We remain committed to delivering simple, integrated and highly effective end-to-end security solutions delivered on-prem and in the cloud.”

Mixed Results

Despite gains in software, services and security, the vendor reported mixed results in its core infrastructure platform business, which includes data center networking switches and routers. Cisco generated $6.39 billion in revenue in these segments, down 3 percent year over year.

From a geographic segment standpoint, results were mixed: Americas declined by 1 percent, while EMEA rose 2 percent, and Asia Pacific was down 4 percent.

Product revenue was led by growth in Security, up 10 percent to $822 million. However, infrastructure platforms revenues were down 3 percent to $6.3 billion and Applications remained flat at $1.35 billion.

“The enterprise market remains soft, driven by some elongated sales cycles and a continued pause in spending amongst some customers brought on by the pandemic,” Robbins said.

As a result of weaker results in some segments, overall revenue remained flat at $12 billion year over year.

Scott Herren, CFO of Cisco, said that while total revenue “came in at the top of our guidance range, flat year over year as we see gradual recovery in several key product areas and sequential growth rate improvement in two out of three of our geographies.”

(To keep up with the Q4 broadband earnings, make sure to check out our new report From AT&T to Verizon: Sizing up Q4 Broadband 2020 Earnings)

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