Cisco has a new problem: You take too long to implement its products and stop buying more kit
Supply chain is back to pre-COVID normal, just in time for big clouds to spend $1 billion on networks for AI
Would you please hurry up and build your network?
The Register is of course not making that request, but merely passing on the plea of Cisco CEO Chuck Robbins, who on Wednesday told investors the networking giant's supply chain problems are over. It has shipped the backlog of devices ordered in and around the COVID-19 pandemic, but which couldn't be built in a hurry. Order lead times and backlog have largely returned to normal levels.
Now Switchzilla has a different supply chain problem: you. Or, more specifically, those of you who work in larger enterprises, service providers, or clouds.
As Robbins put it on Cisco's Q1 2024 earnings call: "After three quarters of exceptionally strong product delivery, our customers are now focused on installing and implementing these unprecedented levels of products. The bottleneck that we previously saw in the supply chain has now shifted downstream to implementation by our customers and partners."
Robbins reckons there's one or two quarters' worth of shipped kit waiting to be installed by customers who have already paid for it. And while they wait to unwrap their kit, they're not buying.
"Simply put, customers are now taking time to onboard and deploy these heightened product deliveries," he explained. Later in the call he described how big enterprise customers might buy 400 or 500 switches, perhaps an infrastructure refresh or rollout to their branches. "And in some cases … it could be sitting with them, or they could have a partner who's doing the staging, and the partner may be backed up with resources to try to get the staging done," Robbins continued.
Investment analysts pressed Robbins on whether the wobbly global economy is the real reason for slowing orders. Robbins pushed back – hard – on that proposition, saying that at last week's Cisco Partner Summit "some of our largest partners, unsolicited, began their conversations with me by talking about this very issue. Candidly, I knew the customers had talked about it and our sales teams have talked about it."
"While the macro challenges we have discussed still exist, we believe this implementation phase is the primary reason for the slowdown in new orders," the CEO insisted.
But Robbins also told investors he sees good times ahead.
"In web scale, we see continued momentum in AI with three of the top four customers deploying our hyperscale Ethernet AI fabric," he boasted, before adding "We also already have line of sight to over $1 billion in orders for AI infrastructure from major cloud providers in fiscal year '25."
Cisco is working to develop more product for the field.
"To help advance AI, we are working with key GPU and storage partners to create solutions – including Ethernet technologies, GPU-enabled infrastructure, and joint-tested and validated reference architectures with a commitment to open networking for AI,” Robbins declared.
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During the Q&A section of the call, Robbins revealed that on Tuesday this week "Jensen [Huang] from Nvidia and four or five of his executives came over to see us, and we spent 90 minutes together with my executive team. And we believe we have a great opportunity to actually build some integrated solutions between our technology and their technology to actually take to the enterprise."
Robbins said companies are "beginning to see the use cases in the enterprise evolve. And we think that a partnership with Nvidia – in that case, with our underlying technology and our strength of go-to-market – will be a winning combination."
Cisco's Q1 saw the networking giant haul in $14.7 billion of revenue – an eight percent year-on-year improvement. Net income of $3.6 billion was a 36 percent jump. Total software revenue was up 13 percent year over year and software subscription revenue rose by the same amount, while annualized recurring revenue reached $24.5 billion – up five percent. Those are welcome numbers given Cisco's desire to diversify its offerings and move to more recurring revenue rather than rely on box sales.
Q2 revenue was forecast at between $12.6 billion and $12.8 billion, compared to $12.7 billion for the same quarter in FY 2023. Which is why Robbins so vigorously pointed out your role in Cisco's woes.
Full-year revenue was forecast at $53.8 billion to $55.0 billion – a decent pop from last year's $51.6 billion. But achieving that result depends on customers finishing some projects and moving on to the next one. ®