Robbins said the company's fiscal fourth-quarter results concluded a "transformative year" for Cisco, wherein it made strong progress on plans to diversify away from its legacy router business and toward more lucrative technologies like the Internet of Things, cloud computing and security. The idea is that as orders of products like routers and switches continue to decline, Cisco can find stability through subscription-based services and other recurring revenues.
Shares of Cisco were sliding 2.5% to $31.53 in after-hours trading on Wednesday following its mixed fourth-quarter earnings report.
The chief executive told investors on an earnings call that revenue from subscriptions now represents 51% of the company's software revenue and 31% of Cisco's total revenue. He added that "for the first time ever" roughly 11% of Cisco's product revenue came from recurring offers, which jumped 40% year-over-year.
"As we've discussed many times in the past, we're working on a multiyear transition," Robbins said on the call. "And while I'm confident with our progress, it's clear that there's more for us to do."
"I'm optimistic about our future, the direction we're headed and how we're transforming Cisco for the future," he added.
Cisco has seen particularly strong traction in its security business, as it's been able to been bundle security-related software, like firewall protection and breach detection systems, in packages that also include hardware products. Security revenue grew 3% year-over-year during the fourth quarter, helped in part by a boost in customer demand from the recent ransomware attacks. Security sales declined incrementally from the prior quarter, however, when sales grew 9%, and the 2016 fourth quarter, when the unit grew 16%.
UBS analyst Steven Milunovich noted that this quarter's security revenue was "much less" than the low to mid-teens growth the company had predicted at its analyst day in June. The company attributed the lower-than-expected security sales to a revenue timing issue. CFO Kelly Kramer said the company expects an uptick in security revenue in the fiscal first quarter.
"I have zero concerns about the business," Robbins noted. "This is a revenue timing issue."
Cisco posted its seventh-straight quarter of revenue declines during the fourth period, dragged down primarily by single-digit year-over-year declines in its core switching and router segments, which remain its two biggest businesses. Newer businesses like its wireless unit grew 5% year-over-year, but that did little to offset the declines in its total revenue. That factor is largely the reason why Cisco expects sales to decline between 1% and 3% in the fiscal first quarter.
The performance shows just how long it will take for Cisco's transformation to finally show up in its financial results. It's also reflective of a trend that nearly all enterprise companies are dealing with, said Patrick Moorhead, president of Moor Insights & Strategy.
"Successful enterprise technology providers, for the most part, are all experience the same challenge -- how to add 'cloud native' revenue at a faster pace than declining 'traditional enterprise revenue,'" Moorhead said. "I was very happy to see increases in both wireless and security businesses as these are important to Cisco's future."
More of What's Trending on TheStreet:
- Here Are 10 Absolutely Worthless Pieces of Sports Memorabilia
- 50 Reasons Dying Sears Had No Choice But to Strike a Deal With the Ruthless Amazon
- A Former Netflix Exec Reveals the Real Reason Why Disney Probably Dumped Netflix
- These Are the 10 Worst Dirty Lies People Tell on Their Resumes