Cisco Systems has surpassed its goal of generating 30% of its revenue from software and is on track to have subscriptions to half of its revenue by fiscal 2025.
“Cisco is one of the biggest software companies in the world and I don’t think anyone thinks of Cisco in those terms,” Scott Herren, Cisco CFO, said at the company’s investor day on Wednesday.
More impressive, said Chuck Robbins, CEO of Cisco, is that when he took the helm in 2015, the company had generated $ 3.4 billion in subscription software revenue. That’s compared to fiscal 2021 (ended July 31, 2021), in which Cisco achieved nearly $ 12 billion in subscription software revenue, a compound annual growth rate of 23%.
“We have kept our promises since I started as CEO. We now have one of the largest software companies in the world combined with part of our world class business that we are building right now, ”Robbins told reporters and analysts. “We have work to do in some areas. … But I am really confident in the future.
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Software accounted for 29% of Cisco’s revenue in fiscal 2020, while subscription revenue in that fiscal year accounted for 74% of software revenue, exceeding the company’s target of 66%. was set in 2017 on its last investor day. In the recently completed fiscal year 2021, 31% of revenue was from software, and subscriptions accounted for 79% of software revenue. Software and services revenue also exceeded Cisco’s target of 50% of total revenue, reaching 53% by the end of fiscal 2021.
“Cisco was aiming for two-thirds of its software revenue to come from subscriptions, and they’ve met and surpassed that goal, so we know they’re leading the way here,” said Shelliy Cymbalski, chief marketing officer for Tempe, Arizona. – based on iT1 Source, a Cisco partner that focuses on consumption-based subscription software and services.
“As our model changes, [vendors] as Cisco says, “We’re going to pivot.” Our # 1 goal is to offer customers, not just the traditional, but to really try and focus them on a cloud-based or subscription-based model, because we believe if we don’t, someone else will, ”she said.
Cisco unveiled its software and subscription switchover plan in 2017 and made it a priority to bring partners with them, Cymbalski said. “What I love about Cisco is when they announce a change, they have their sales rally, they explain what’s going to happen, they set the goal, they give the Cisco channel [partners] the goal, and they’re changing our programs, ”she said. “You see things change as they go along.”
Cisco’s management team said that between 2021 and 2025, revenue from product subscriptions is expected to grow the most, between 15 and 17 percent of CAGR. In contrast, revenues from non-subscription products are only expected to increase between 2% and 4%.
As Cisco’s subscription business grows, its predictable revenue also grows, said Liz Centoni, senior vice president and general manager of Cisco’s applications business.
“Every part of Cisco’s portfolio – not just software – is [or] will be available as a service if our customers want to consume it that way, ”she said.
New and emerging markets that Cisco is entering, such as 5G, IoT and hybrid cloud, are also aligned with Cisco’s all-as-a-service strategy, Centoni said. “These new markets… will help us strengthen our leadership in IT networks and security, and expand our reach to new users and shopping centers like application developers and cloud and digital teams.