Cisco Systems, Inc. (CSCO) Management Presents at Nasdaq Investor Conference (Transcript)

Summary of Cisco Systems, Inc. Investor Conference Call Company Overview - Company: Cisco Systems, Inc. (NASDAQ: CSCO) - Date: June 14, 2022 - Participants: Richard Scott Herren (EVP and CFO), Jared Ian Weisfeld (Jefferies) Key Points Industry Transition and Revenue Model - Cisco is transitioning to a recurring revenue model, aligning with industry trends, with overall market growth projected at 5% to 7% over the next five years, while subscription growth is expected at 15% to 17% [3][4] - As of the last quarter, 43% of Cisco's revenues were recurring, with an annualized recurring revenue (ARR) exceeding $22 billion and remaining performance obligations (RPO) of about $30 billion, of which $16 billion is expected to convert to revenue within the next 12 months [4] Financial Performance and Challenges - The April quarter experienced a mixed performance with flat year-on-year revenue growth and a total top-line impact of approximately $500 million due to supply chain constraints and the cessation of operations in Russia and Belarus, which accounted for a $200 million revenue loss [5][6][11] - The complete shutdown in Shanghai contributed an additional $300 million impact on revenue due to supply chain disruptions [9][10] Demand and Supply Chain Insights - Demand remains strong, with a backlog exceeding $15 billion and a significant portion attributed to software [40] - The company added over $1 billion to its backlog in Q3, indicating solid demand despite supply chain issues [16] - Cisco's supply chain team is actively qualifying second and third sources for critical components and redesigning products to mitigate supply chain challenges [21][22] Gross Margin and Pricing Strategy - Gross margins were down year-on-year by about 80 basis points due to increased component costs and logistics expenses [25] - Cisco has implemented price increases to offset rising costs, with two price hikes in the last 12 months [26][34] Market Position and Future Outlook - Cisco is well-positioned for potential economic downturns, with $30 billion in RPO and a strong backlog, indicating resilience in demand [45] - The company is evaluating M&A opportunities but remains disciplined, focusing on strategic fits and cultural alignment [47][48] Security and Silicon Strategy - Security is identified as a significant growth opportunity, with a focus on developing a comprehensive security platform rather than point products [53] - The Silicon One strategy is crucial for success with hyperscalers, emphasizing high performance and low energy consumption, aligning with sustainability goals [55] Conclusion - Cisco's transformation towards a recurring revenue model and its strategic focus on security and silicon innovation position it favorably in the market, despite current supply chain challenges and economic uncertainties [57]