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Cisco has reported a 6% revenue increase in the quarter ended July 28, as the strong economy contributed to a boost in product sales and customer adoption of new software-driven technology.
Cisco reported on Wednesday its "highest quarterly revenue" of $12.8 billion and predicted a 5% to 7% increase in Cisco revenues year over year in the current quarter, which sent its stock up more than 6% in after-hours trading.
Cisco predicted adjusted net income for the quarter ending in October would range from 70 to 72 cents a share, beating analysts' projection of 69 cents. Earnings of 70 cents per share for the July quarter beat analysts' expectations by a penny a share.
The company reported "solid demand" for its products as it continued its transformation into a provider of network software and services from a company dependent on selling high-priced switching and routing hardware. Application sales rose 10% and recurring revenue, a reflection of sales in software subscriptions and services, accounted for 32% of total revenue, up a point from the same period last year.
During a conference call with analysts, Cisco CEO Chuck Robbins attributed the company's strong quarter to a combination of customers buying more during a strong economy and execution by the Cisco's sales and product development teams.
"I'm pragmatic to know it's a combination of both," Robbins said. "Clearly, the economy has been pretty consistent, and the markets have been positive, so that has certainly helped."
Cisco revenues show new product sales
Nevertheless, Robbins was pleased with customer reaction to Cisco's new products, notably the Catalyst 9000 campus switch and the Viptela software-defined WAN, which Cisco acquired last year for $610 million.
Chuck RobbinsCEO, Cisco
Introduced in June 2017, the Catalyst 9000 is the first switch Cisco has sold that requires the customer to buy a subscription to the software running on the hardware.
"I'm very pleased with how the adoption has been from our customers," Robbins said. As of the end of the July quarter, Cisco had sold the Catalyst 9000 to more than 9,650 organizations.
"You'll see us over the next coming quarters when we bring new products to market -- particularly in the enterprise networking space, but across the portfolio -- we will apply that same [software subscription] strategy," Robbins said.
Viptela is vital in maintaining Cisco's leading position as a campus networking supplier. The SD-WAN product routes traffic via software to and from campus networks and remote offices. Cisco has integrated the subscription-based Viptela with its Integrated Services Router (ISR) and plans to combine the software with other hardware.
"We've begun to see customers actually move forward with deployments," Robbins said. "It's early, but we like where we are, and we like what we see."
Cisco revenues helped by service providers
Cisco also managed to increase sales by 6% to services providers, a customer segment that was down 4% in the previous quarter. Robbins attributed the growth to increased spending by some large customers rather than to purchases of new technology, such as products related to 5G, the next generation of wireless technology.
Robbins said carriers started discussing the infrastructure needs for 5G "in earnest" at Mobile World Congress in Barcelona in February. Nevertheless, he did not expect 5G-related sales to begin for at least a year, picking up in 2020.