Cisco today said it’s experiencing the strongest demand in nearly a decade but supply chain challenges are spoiling what would otherwise be greater financial performance.

Supply chain constraints impacted revenue during the company’s third quarter of fiscal year 2021, dampened guidance, and is causing backlogs on orders, Cisco executives said during the earnings call.

“We are experiencing the strongest demand in nearly a decade. We're also seeing similar component shortage supply issues as our peers,” CEO Chuck Robbins said. “The good news, and this is reflected in our guidance, is that we're confident we will work through this as we have already put in place revised arrangements with several of our key suppliers.”

Those arrangements, however, come with higher costs for components, expedite fees, and freight shipping. Cisco expects supply chain disruptions to continue through at least the end of 2021.

“It's a complicated thing that we're navigating through right now, but I'll tell you that notwithstanding that it's the best I've felt about the business and our momentum and where we are in quite a while,” Robbins said. 

Cisco is experiencing broad increased demand for products and services for hybrid work, digital transformation, cloud computing, and subscription-based offerings, he said. “We’re also seeing early momentum in the ramping of key technology cycles that are long-term growth drivers for our business such as 5G, 400 Gb/s, and edge.”

The company reported a 10% growth in product orders during the quarter, but didn’t capture all of that as revenue due the ongoing supply chain constraints. Cisco products generated 71% of the vendor’s revenue during the quarter, jumping 6.3% from the year-ago period to $9.1 billion. Under that umbrella of products, Cisco’s infrastructure platforms’ revenue grew 6% to $6.8 billion, applications jumped 5% to $1.4 billion, and security increased 13% to $876 million.

“We have an unrivaled ability to provide end-to-end security capabilities across users, devices, applications, and data on any network or any cloud,” Robbins said, adding that every member of the Fortune 100 is using Cisco’s security offerings. “These customers are increasingly deploying our zero trust and secure access service edge, or SASE architectures, along with automation, authentication, and analytics capabilities."

Service revenue increased 8.2% year over year to almost $3.7 billion during the quarter. “We continue to aggressively shift our business to more recurring revenue streams, which we expect to grow over time as we expand our offerings,” Robbins said, adding that 81% of software revenue was sold as a subscription during the quarter, up from 76% in the previous quarter.

“We’re now one of the biggest software companies in the world, north of $14 billion in software revenue and I don’t think anyone thinks of Cisco in those terms,” Cisco CFO Scott Herren said, referencing the company’s current annual run rate on software sales.

The company captured almost 57% of its sales from the Americas region, followed by 27% in Europe, the Middle East, and Africa, and 15% from Asia Pacific, Japan, and China. 

Cisco banked $2.9 billion in net income on $12.8 billion in revenue during the quarter, reflecting a 3% year-over-year increase in profit and a 7% jump in revenue. The company also closed its acquisitions of Acacia Communications, IMImobile, and Dashbase during the quarter.