Cisco targets 50% of its revenue from software and other recurring sales

Cisco Systems forecast that about half its revenue will come from software and other recurring sales within four years.
Cisco networking businessCisco Chief Financial Officer Scott Herren told Reuters high chip prices in its hardware business will keep pressuring profits.

Cisco is the #1 maker of networking gear for data centers and corporate campuses. Cisco is shifting toward selling recurring subscriptions for software such as its WebEx video and audio collaboration service and cybersecurity services.

Cisco has generated revenue of $3.38 billion (+7 percent) from security, $27.10 billion (nil growth) from Infrastructure Platforms, $5.50 (–1 percent) from Applications during fiscal 2021 ended July 31, 2021.

Cisco at an event with Wall Street analysts said it believes the portion of its revenue coming from subscriptions will rise from 44 percent notched for its fiscal 2021 ended July 31 to 50 percent by fiscal 2025.

Cisco gave a fiscal 2025 revenue forecast with a midpoint of $62.9 billion, saying it expects a compound annual growth rate of 5 percent to 7 percent. Cisco predicted the same growth rate for adjusted profits, targeting a midpoint of $4.07 per share in fiscal 2025.

Cisco’s Scott Herren said the enterprise networking leader’s software units do have higher margins than its hardware business, but some subscription revenue will also come from services that have lower margins than software.

Scott Herren said a shortage of parts such as computing chips, memory chips and even power supplies will pressure gross margins in the company’s hardware business, which Cisco also forecasts will keep growing.

Cisco is one of the customers of Taiwan Semiconductor Manufacturing (TSMC). TSMC increased their price by 8-20 percent.