Shares of Cisco dip following mixed Q1 results

Sales in Q1 were up across Cisco's newly-organized product categories, except in the "hybrid work" category.

Shares of Cisco were down on Wednesday after the company published mixed first-quarter financial results. Sales were up across Cisco's newly-organized product categories, except for "hybrid work" products, which faced tough year-over-year comparisons. 

Total product order growth in Q1 was up 33% year-over-year, while product revenue was up 11%.

Cisco's Q1 non-GAAP earnings per share came to 82 cents on revenue of $12.9 billion, up 8% year-over-year. 

Wall Street was expecting first-quarter earnings of 80 cents per share on revenue of $12.98 billion.

"In Q1, we had robust growth and continued strong demand despite the very dynamic supply environment," CEO Chuck Robbins said in a statement. "Cisco's technology sits at the heart of the accelerated digital transformation happening today. Our breakthrough innovation, strong demand, and the success of our business transformation position us well for another year of growth in fiscal 2022."

On a conference call, Robbins elaborated on the impacts of ongoing supply chain constraints.

"We are constrained in what we can build and ship to our customers," he said. We have a world-class supply chain team that works to deliver an incredibly high volume of products given our scale and reach. They continue to execute well in this highly fluid and complex environment."

The company is taking steps to mitigate the supply shortages, he said, such as working closely with key suppliers and contract manufacturers, paying significantly higher logistics costs, modifying designs and optimizing the build and delivery plans. 

"We are doing this at a breadth and scale that is significantly greater than most in our industry," Robbins continued. "Of course, all of these steps, while necessary to maximize our production and delivery to customers, add to our cost structure. When combined with cost increases, we are seeing from many of our suppliers; these factors are putting pressure on our gross margins. While we thoughtfully raised prices to offset this impact, the benefits are not immediate and will be recognized over the coming quarters."

Cisco's non-GAAP operating margin in Q1 was 33.3%.

Product revenue in the first quarter was up 11% year-over-year, totaling $9.53 billion. 

Effective for the first quarter of fiscal 2022, Cisco began reporting revenue in the following categories: Secure, Agile Networks; Hybrid Work; End-to-End Security; Internet for the Future; Optimized Application Experiences; Other Products and Services. 

The change reflects remarks from Robbins, who said at Cisco's 2021 Investor Day that the future of the business would stand on six technology areas: secure, agile networks; hybrid work; security; internet for the future; optimized application experiences; and capabilities at the edge.

For Q1, product revenue was led by sales in Secure, Agile Networks, which was up 10% to $5.97 billion. "Internet for the Future" revenue was up 46% to $1.37 billion. End-to-End Security revenue was up 4% to $895 million. Optimized Application Experiences was up 18% to $181 million. Hybrid Work was down 7% to $1.11 billion. Other product revenues were up 9% to $3 million. 

Service revenue in Q1 was up 1% year-over-year, reaching $3.37 billion. 

Deferred revenue in Q1 was $22.1 billion, up 8% in total, with deferred product revenue up 19%. Deferred service revenue was flat.

For the second quarter, Cisco expects revenue growth of 4.5% to 6.5% year-over-year.