Cisco security sales disappoint, DRAM drought dents results

It's okay, though, we've got an iPhone app coming soon says CEO Chuck

For a couple of years now, Cisco has said its future lies in selling more software, but it's not quite working out as planned.

In its fourth quarter 2017 (and full-year) results announced today, nobody was particularly surprised that hardware operations shrank (routing and switching both down by nine per cent to US$1.9 billion and $3.4 billion, respectively).

However, financial outlets like Reuters reckon what unsettled traders enough to lop 2.5 per cent off Cisco shares after hours was to see operations like its security business missing forecasts.

Until the last two quarters, security was one of Switchzilla's highlights, turning in reliable double-digit growth; this year, it reached $558 million, but that's a mere three per cent better than the same quarter in 2016.

The full-year result for security was better, with the segment adding nine per cent to top $2.1 billion. CEO Chuck Robbins reckons the forward orders are good enough that security will recover in the coming quarter.

Here's the full segment breakdown for the quarter:

Segment Q4 2017 $ (millions) Year-on-year change FY 2017 $ (millions) Year-on-year change
Switching 3,439 -9% 13,949 -5%
NGN Routing 1,893 -9% 7,831 -4%
Collaboration 1,113 -3% 4,278 -2%
Data Centre 837 -4% 3,228 -4%
Wireless 799 5% 2,766 5%
Security 558 3% 2,153 9%
Service Provider Video 227 -10% 946 -23%
Other 161 31% 554 53%

Not all the signs put Cisco's transformation in a bad light: recurring revenue reached 31 per cent of total revenue (up four per cent year-on-year for its fourth quarter 2017), the quarter's revenue of $12.1 billion was down four per cent on the year.

And the end of the tunnel is still unlit: CEO Chuck Robbins offered a horse-frightening one-to-three per cent year-on-year decline for the coming quarter (Q1 2018).

Switchzilla did, at least, manage a full-year growth: two per cent better than 2016 at $48 billion.

An iOS app might seem a thin ray of sunshine, but Robbins pulled it out alongside the company's deal with IBM as examples of Cisco's growth strategy: “We plan to deliver the first enterprise security application on Apple iOS and we're integrating our comprehensive security portfolio with IBM's Cognitive Security operations platform.”

These, along with a deal with Microsoft, were announced during the quarter just finished. Redmond will get the ability to run its operating systems on Cisco data centre switches within its Azure infrastructure, and Cisco's “fog computing” solutions will get an Azure tint so customers can run IoT applications in Redmond's cloud.

It's also worth pointing out that the ongoing instability in the DRAM market continues to hit Cisco's cost base. As CFO Kelly Kramer told the results call:

“The one and the biggest impact by far has been the increase of memory pricing and DRAM, specifically for the overall business that accounts for more than half of the two points decline.”

That leaves Cisco with limited opportunity to improve productivity, which along with a “slight uptick in pricing erosion” is the kind of thing that keeps CFOs awake at night. ®

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