Cisco Systems Inc. revenue grew for the third quarter in a row and hit a record, the company revealed Wednesday, and guidance indicated that the networking giant’s return to growth may be more sustainable.
reported better-than-expected fourth-quarter earnings Wednesday, with revenue growth of 6% and a full-year increase of 3% to $49.3 billion. That represented the company’s first full fiscal year of appreciable revenue growth in two years, growth that has been propelled partly by a major new switching product, the Catalyst 9000, a software-centric switch introduced in 2017 that moves Cisco toward more recurring revenue.
The move toward more of a software-style focus with recurring revenue has hammered Cisco’s revenue growth numbers in the past two years, but the company appears to now be exiting that period and headed toward solid, predictable growth rates. Cisco forecast growth of 5% to 7% for the first fiscal quarter, including a slight boost from a new accounting standard that requires the company to recognize more of its contracted revenue up front.
“Approximately a point of [the projected growth rate] is because of the new standard,” Chief Financial Officer Kelly Kramer told MarketWatch in a telephone interview Wednesday.
She noted that under the old accounting standard, if Cisco sold a product for $100, it would recognize approximately $75 up front, and then the remaining $25 would be recognized over a period of three years. Now, more of that revenue will be recognized upfront, boosting sales numbers.
“Some will still be deferred, but say 10% to 11% [of the revenue] will be deferred,” Kramer noted. “I will be deferring less.”
That will help make Cisco’s revenue slightly more predictable, because the company will see fewer headwinds related to its deferred revenue, though Kramer said the service-provider segment will fluctuate. When asked if she could talk about the potential for more growth ahead in fiscal 2019, she declined to make a full-year forecast, but noted that “there is a lot of momentum in the business.”
If Cisco can maintain the first-quarter growth rate through the fiscal year that began in late July, it will easily top $50 billion in revenue for the first time in its history. Beyond that, the company could find another leg with a product refresh related to new 5G wireless technology, which Chief Executive Chuck Robbins said should be a major part of fiscal year 2020.
“We expect that is still a year out before many will start [upgrading for 5G], and probably see it in earnest into 2020, to be fair,” Robbins said in response to a question. “But we’re pleased with what our teams have done. It’s been a tough market.”
Wall Street has been a tough market for Cisco in recent years, as it faced doubts that the company could continue to grow amid issues for its core routing and switching businesses. Robbins, however, has pushed the company toward a recurring-revenue and software-centric approach that appears to have Cisco on a path to a future that could defy its critics.
Cisco’s revenue growth through the past nine months has already helped its stock price, which added another 6% in after-hours trading Wednesday. For the year so far, Cisco shares were up 14.8% before the report, while the Dow Jones Industrial Average
of which Cisco is a component, have gained 1.8%.
Want this type of analysis sent to your inbox? Subscribe to MarketWatch’s free MarketWatch First Takes newsletter. Sign up here.