Cisco can't say when long waits for hardware will end

Omicron dents Switchzilla's previous optimism that late 2022 could see backlog clear


Cisco has reported a record backlog of orders it can't fulfil – $14 billion worth – and can't say when supply chain issues will ease enough to let it deliver networking kit for which some customers have waited many months.

Speaking on the company's Q2 FY2022 earnings call, chair and CEO Chuck Robbins said Cisco's supply chain situation in the quarter "didn't get materially worse and didn't really get materially better."

"I wouldn't say we have a great timeline … as to when things begin to improve."

Chief financial officer Scott Herren weighed in on the subject, too, with his view that supply chain constraints won't ease markedly in the near future.

"I don't believe it unwinds in a lumpy fashion," he said. "It'll unwind as supply and demand get more in balance. And I think that will just happen gradually over the course of the next few quarters."

Cisco has previously suggested Q3 and Q4 2022 would see improved supply chain conditions and help it clear its backlog. The rampaging Omicron COVID-19 variant has put paid to that prediction, with Robbins citing "people being sick and not being able to show up in factories and some of the logistics issues that are well-documented" as issues with which Cisco has had to contend.

The networking giant therefore has $14 billion of orders on its books, and little idea when it will fulfill them.

That's hurting in two ways. One is that $2 billion of the backlog is software – a product line Cisco has identified as a critical growth area as it moves to tie its hardware to cloud services and migrate customers to subscriptions rather than big-bang hardware buys.

The other is that Cisco is making big advance payments to secure supply of components it needs. Those payments saw the firm's operating cashflow for the quarter fall 17 per cent year on year, to $2.5 billion.

Overall, Robbins and Herren were pleased with the company's progress.

Revenue was $12.7 billion, up six per cent year over year. Net income of $3 billion was a 17 per cent improvement compared to Q2 in 2021.

Sales of hybrid work products – think video meetings and collaboration – dropped nine per cent thanks to "declines in our collaboration devices and meetings offerings." Collaboration services grew to offset that fall. Cisco will rename the hybrid work segment to "collaboration" to reflect the shift.

Robbins sees better days ahead, because demand is currently strong for plenty of Cisco products. The CEO mentioned hyperscale kit, Wi-Fi, 5G, 400 gigabit Ethernet, Wi-Fi 6, hybrid cloud, hybrid work, and edge compute as fields for which customers are clamoring.

Once backlogs ease and Cisco can meet that demand, it will be able not only to recognize revenue it can't currently put on the books, but also to benefit from sales at prices inflated by various pandemic-related factors. The company therefore forecast a slight increase in future gross margins, and revenue growth of 5.5 to 6.5 per cent year-on-year. ®

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