By Stephen Nellis and Sinéad Carew
(Reuters) – Cisco Systems Inc. predicted on Wednesday that in four years’ time, about half of its revenue would come from software and other recurring sales, but its chief financial officer told Reuters that high chip prices in the your hardware business will continue to press for global profits.
Cisco is the largest manufacturer of network equipment for corporate data centers and campuses, but is targeting the sale of recurring software subscriptions, such as the WebEx collaboration service and cybersecurity services. .
At an event with Wall Street analysts, Cisco said it believes its share of revenue from subscriptions will increase from 44% for its 2021 fiscal period ended July 31 to 50% before fiscal 2025.
The company presented a tax revenue forecast for 2025 with an average point of $ 62.9 billion, saying it expects a compound annual growth rate of 5% to 7%. Cisco predicted the same growth rate for adjusted earnings, targeting an average of $ 4.07 per share during fiscal year 2025.
Shares of Cisco closed up 0.5% to $ 57.56 after the event. Piper Sandler analyst James Fish told Reuters that Cisco’s outlook implies that profit margins will remain flat, but Wall Street expected growth in Cisco’s margin for change in software.
Cisco Chief Financial Officer Scott Herren said the company’s software units have higher margins than the hardware business, but some subscription revenue will also come from services that have lower margins than the software.
But Herren said the global shortage of parts, such as computer chips, memory chips and even power supplies, will put pressure on gross margins in the company’s hardware business, which Cisco also predicts will continue to grow.
“The shortage of components everyone is facing right now has led to price increases, and those price increases will be with us for quite some time,” Herren told Reuters in an interview. “We are a customer (Taiwan Semiconductor Manufacturing Co.), which made the overall price range between 8% and 20%. We are subject to that.”
(Report by Stephen Nellis in San Francisco and Sinead Carew in New York; Edited by David Gregorio)