Updated on Feb. 10, 2021:
Cisco expects to return to revenue growth in the current quarter as companies upgrade wireless networks and purchase more video conferencing gear to support employees returning to offices.
The company forecast Tuesday that revenue would rise by 3.5% to 5.5% year over year, with non-GAAP earnings per share from 80 to 82 cents. The increase would be the first in six quarters.
The forecast was a significant improvement over the second fiscal quarter ended Jan. 23. In that period, revenue was flat at $12 billion while non-GAAP earnings per share increased 3% to 79 cents, Cisco reported.
The company expected sales to increase considerably over the coming months, as companies prepare for a post-pandemic hybrid work environment where employees split their work time between the office and home.
During a conference call with Wall Street analysts, Cisco CEO Chuck Robbins said orders for Cisco's Wi-Fi 6 products grew 20% in the second fiscal quarter. Higher demand for the next-generation wireless LAN technology meant companies were preparing to upgrade networks for returning employees.
Along with bolstering Wi-Fi systems, companies would likely buy video conferencing hardware for meeting rooms, Robbins said. Customers will need the gear to accommodate employees attending meetings remotely.
The increase in video conferencing will require more bandwidth and an upgrade in switching infrastructure to support it, Robbins said. Cisco expects the latter to drive higher sales of its Catalyst 9000 campus switches.
"That's the way we see it playing out over the next few months," Robbins said.
Tech analyst Patrick Moorhead, founder of Moor Insights & Strategy, agreed that Cisco stood to benefit from companies bringing workers back to offices. During the current quarter, "the biggest growth will be Webex [video conferencing] and edge infrastructure as companies prepare for workers' return," he said.
In the January quarter, security outpaced other product segments with a 10% increase in sales. Infrastructure platforms, including data center and campus software, switches and routers, fell 3%. The category is the company's largest revenue driver.
The application segment was flat for the quarter. The category includes Cisco's phones, video conferencing hardware and Webex collaboration software.
Revenue from hyperscale data centers rising
Cisco reported significant progress in the service provider customer category, which Robbins acknowledged "has been a tough segment for us for many, many years." Orders rose 5%, driven primarily by progress in selling to public clouds and other organizations with mega-scale data centers.
The improvement stemmed from Cisco's launch in 2019 of network silicon called Silicon One. Telcos and hyperscale data center operators could use the ASIC in white box routers instead of Cisco's proprietary gear. Cisco also sells its network software separately to service providers.
Cisco's success in selling disaggregated hardware and software led to a triple-digit increase in sales to mega-scale data centers. Robbins said the facilities accounted for 25% of service provider revenue last quarter and 21% on average for the previous four quarters.
"If you look at it over the course of [the next] four quarters, six quarters, eight quarters, it should continue to be positive," Robbins said.
Despite the good news, overall revenue from service providers was down as Cisco struggled to sell products to telcos, accounting for 60% of the segment's revenue.
Robbins attributed the continued weakness in sales to the slow pace of network buildouts to accommodate 5G, the next-generation wireless technology. Cisco has 35 customers worldwide that are transitioning to 5G.
"We're just early in that transition," he said.
Robbins did not predict when 5G-related sales would start driving positive revenue growth from telco customers.
Antone Gonsalves is the news director for the Networking Media Group. He has deep and wide experience in tech journalism. Since the mid-1990s, he has worked for UBM's InformationWeek, TechWeb and Computer Reseller News. He has also written for Ziff Davis' PC Week, IDG's CSO Online and IBT Media's CruxialCIO, and rounded all of that out by covering startups for Bloomberg News. He started his journalism career at United Press International, working as a reporter and editor in California, Texas, Kansas and Florida.