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For FY 2020, more than half of Cisco sales came from software and services

Cisco posted better-than-expected Q4 results, with product sales declining and services revenue flat year over year.
Written by Stephanie Condon, Senior Writer

Cisco on Wednesday published its financial results for the fourth quarter and full fiscal year. By the end of fiscal 2020, Cisco said it achieved its goal of acquiring more than half of its revenue from software and services. Still, revenue was down year-over-over with the COVID-19 pandemic having its largest impact on Cisco's enterprise and commercial orders.

"We are seeing customers continue to delay their purchasing decisions in certain areas while increasing spend in others until they have greater visibility and clarity on the timing and shape of the global economic recovery," Chairman and CEO Chuck Robbins said on a Wednesday conference call. 

At the same time, he said, "the pandemic has also triggered a massive and rapid shift to remote operations and automation to maximize personal safety. With this, many customers are increasingly reliant on our broad portfolio of technologies, resulting in another quarter of strong demand for our Catalyst 9000, Security, WebEx and other SaaS-based solutions."

Cisco's fourth quarter non-GAAP net income came $3.4 billion, or 80 cents per share. Total revenue was $12.15 billion, a decrease of 9% year-over-year. 

Analysts were expecting earnings of 74 cents per share on revenue of $12.08 billion.

For the full 2020 fiscal year, Cisco's non-GAAP EPS came to $3.21 on revenue of $49.3 billion, a decrease of 5% year-over-year.

Cisco's focus on software and services "continues to resonate with customers as they digitize their organizations," Robbins said in a statement. "Throughout fiscal 2020, Cisco has demonstrated operational resilience based on our strong customer relationships, solid financial foundation, and differentiated innovation. As we focus on the future, we are rebalancing our R&D investments to focus on new areas so we can continue to offer customers the best, most relevant technology in simpler, more easily consumable ways."


Product revenue in Q4 was down 13% to $8.83 billion. Within this category, sales from infrastructure platforms was down 16% to $6.6 billion. Infrastructure platforms took the biggest hit from the pandemic, Cisco said, with declines across switching, routing, data center and wireless. There were pockets of strength with the continued growth of Cat 9K, which was up double digits. 

"Within our infrastructure platforms business, we continue to see a strong ramp of our Catalyst 9K portfolio as many customers take advantage of their employees working from home to refresh their aging infrastructure," Robbins said. 

Application revenue was down 9% to $1.36 billion. On the positive side, Cisco saw a strong double-digit growth in WebEx, as well as solid growth in AppDynamics and IoT software. This was offset by declines in Unified Communication and TD endpoints. 

Sales of security products grew 10% to $814 million. "Other Products," which brought in $35 million, declined by 17%. 

Service revenue was flat year-over-year at $3.32 billion. Cisco saw growth in its maintenance business, as well as software and support services. This was offset by the advisory services business, which was impacted by the COVID environment. 

As of Q4, software subscriptions make up 78% of Cisco's software revenue, CFO Kelly Kramer noted. "Remaining performance obligations continued to grow strongly in the quarter, reflecting the strength of our portfolio of software and services," Kramer said in a statement.

Revenue was down across all customer segments, as well as geographic segments. In terms of customer segments, Cisco saw enterprise revenue decline by 7% and public sector revenue decline by 1%. Commercial revenue fell 23%, while service provider sales were down 5%.


By region: In the Americas, sales declined by 12%, in EMEA by 6%, and in APJC revenue was down 7%. 

On Wednesday's call, Robbins said Cisco will rebalance its R&D investments to focus on key areas, including: Cloud security and cloud collaboration; key enhancements for education, health care and other industries; increased automation in the enterprise; the future of work; and application insights and analytics. 

At the same time, he said, Cisco will continue its focus in the following areas, many of which have been accelerated by the pandemic: multi-cloud investment, 5G and WiFi 6, 400-gig, optical networking, next-generation silicon and AI. 

"These investments will help define the next phase of our transformation and allow us to bring the best, most relevant innovation to our customers in simpler, more easily consumable ways," Robbins said. 

For the first quarter, Cisco expects a non-GAAP EPS between 69 cents and 71 cents. It expects revenue to decline between 9% and 11% year-over-year.

Robbins also announced that Kramer will be stepping down from her role as CFO but will stay on until her successor is on board. 

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