Cisco backlog still looms

Cisco reports that FY2022 product orders are at a record high, but so are the orders it hasn’t been able to fill.

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Like many of its competitors, Cisco’s quarterly and year-end financial results show the good and bad of the current economy—a record of new product orders alongside record backlogged orders.

Cisco reported that for the period ending July 30, its quarterly revenue was basically flat year-over-year at $13.1 billion, but revenue for the 2022 fiscal year was up three percent to $51.6 billion.  

“Full year product orders and backlog are both at record highs,” Cisco’s CEO Chuck Robbins said in a written statement before the company’s quarterly and year-end Wall Street phone briefing.

The company said the backlogged orders are due to supply-chain issues that confront the entire industry and that it is dealing with them on multiple fronts, including re-engineering products with components that are more readily available.

Cisco execs did not provide dollar value, only to say, “our ending product backlog was a record for the year,” and the software backlog is still over $2 billion, a number it reported last quarter. In May, Cisco said its backlog was over $1.5 billion, so it had increased since then.

And while the backlog is growing, Robbins told financial analysts that things were starting to look better, albeit incrementally. “After a challenging April due to the COVID related shutdowns in Shanghai, and the impact on semiconductor and power supplies, overall supply constraints began to ease slightly at the back half of the fourth quarter and continuing into the start of Q1,” he said. 

“The decisions we made and the multiple actions we have taken over the past two years are helping to improve our resiliency and will help offset cost inflation. These actions include adding new suppliers, leveraging alternative suppliers, redesigning hundreds of products to use alternative components with similar capability, and targeted price increases, all of which position as for the future.”

Robbins said Cisco had moved out some of the backlog it was seeing in its firewall portfolio. He also noted that the company’s long-term commitment to growing its software subscriptions is working as subscription-based recurring revenue was up 8%.

Cisco also gave an optimistic forecast for the coming year stating it expects sales growth in a range of 4% to 6%, which is basically double what some financial analysts had predicted.  

“There are currently more technology transitions occurring concurrently than I've seen in 20 years,” Robbins said.   

“Long term megatrends like hybrid cloud, hybrid work, security, IoT, 400Gb and beyond, 5G and Wi-Fi 6, as well as the move towards application observability will likely provide tailwinds to our growth,” Robbins said. He also noted the company had shipped its first 800Gb Ethernet equipment to a web scale customer this quarter.

Wider supply-chain issues

While there are some bright spots, supply-chain problems persist for networking vendors in general.

For example, Arista Networks, recently reported its first billion-dollar quarter in its history despite the “challenges of an uncertain supply-chain environment,” Jayshree Ullal, Arista president and CEO said during his firm’s Q2 financial call.

Ullal said the company faced an additional challenge—ordered components becoming unavailable at the last minute. Inventory increased $852.8 million in the quarter, up from $694.2 million in the prior period, the vendor’s CFO said.

“We need all the components to come together, and the component problem continues,” Ullal said “It was bad in Q1, it’s no better in Q2, and we’re not seeing it going forward with much improvement in Q3. So perhaps in 2023, we’ll get some relief. But again, to get relief, we have to have all the components come. If we’re missing one component, we can’t build a system,” Ullal said.  

Juniper, too, said it exceeded its revenue forecast for 2Q, which saw a second consecutive quarter of double-digit, year-over-year product-revenue growth, according to CEO Rami Rahim. But he said the company is still battling supply-chain and costs issues to keep the product pipeline full. 

Juniper's backlog of orders has increased more than $250 million on consecutive quarters leading to a grand total of about $2 billion. “We also anticipate backlog to remain at elevated levels through the remainder of the year,” Ken Miller, CFO of Juniper said at its recent 2Q financial call. “Every quarter seems to be a different challenge. But we seem to be doing a pretty good job, in my opinion, of navigating those challenges,” Rahim said.

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