[ad_1]
By Stephen Nellis and Sinéad Carew
(Reuters) – Cisco Systems Inc predicted on Wednesday that within four years 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 its business material would continue to put pressure on overall profits.
Cisco is the largest manufacturer of network equipment for data centers and corporate campuses, but it is turning to selling recurring subscriptions for software such as its WebEx collaboration service and cybersecurity services.
In an event with Wall Street analysts, Cisco said it believes its share of its revenue from subscriptions will rise from 44% in its 2021 fiscal year ended July 31 to 50% by 2025.
The company gave a revenue forecast for fiscal 2025 with a midpoint 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 a midpoint of $ 4.07 per share in fiscal 2025.
Cisco shares closed 0.5% lower at $ 57.56 after the event. Piper Sandler analyst James Fish told Reuters Cisco’s outlook implies profit margins will remain stable, but Wall Street was hoping for margin growth from Cisco’s switch to software.
Cisco CFO Scott Herren said the company’s software units have higher margins than its hardware business, but some subscription revenue will also come from services that have lower margins than software.
But Herren said a global shortage of parts such as computer chips, memory chips and even power supplies will put pressure on the gross margins of the company’s hardware business, which Cisco says will continue to grow. .
“The component shortages that everyone is facing right now have led to price increases, and those price increases are going to be with us for a while,” Herren told Reuters in an interview. “We’re a customer of (Taiwan Semiconductor Manufacturing Co), and they’ve generally increased prices, ranging from 8% to 20%. We are subject to this. “
(Reporting by Stephen Nellis in San Francisco and Sinead Carew in New York; editing by David Gregorio)
[ad_2]
Source link