Cisco, despite its hardware heritage, wants it to be known its future lies in software, the cloud, and subscription-based services.

Company brass underlined this point repeatedly during the company’s investor day conference.

“We have introduced so many new ways for our customers to consume our technology,” CEO Chuck Robbins said. “We disaggregated software and hardware. We’re now delivering flexible consumption models, delivering our technology as a service. We want to truly meet our customers where they are, and this is why we’re confident about the future.” 

Cisco’s software subscription business has grown 253% during Robbins’ six-year run at the helm. Cisco reported $3.4 billion in subscription-based software when he joined in July 2015 and it ended its last fiscal year with $12 billion, he said, adding that 81% of Cisco software is now sold as a subscription.

The company intends to report annual recurring revenue and subscriptions as a percentage of total revenue at the end of this current quarter. Software accounted for 30% of Cisco’s revenue in fiscal year 2021, and the company expects subscriptions to generate at least half of its total annual revenue in fiscal year 2025.

Cisco Invests Bulk of R&D on Subscription Growth

“The majority of what we spend on research and development is focused on driving that subscription base,” CFO Scott Herren said. “Qualitatively, it’s the vast majority of what we spend on research and development.”

He also noted that most of Cisco’s software subscription sales are not attached to hardware, or rather as Robbins clarified, not monetized through a piece of Cisco hardware that’s connected to that Cisco software. 

“We’re one of the biggest software companies in the world today,” Herren said.

Liz Centoni, chief strategy officer and GM of Cisco’s applications business, underlined the multiple emerging and adjacent segments Cisco is targeting to boost its business as a whole.

Growing opportunities in software, subscriptions, the cloud, edge, and telecom will push Cisco’s total addressable market to $400 billion in 2025, she said. Additional potential in the future of work, collaboration, artificial intelligence, analytics, and automation push that figure to $900 billion, according to Centoni.

Cisco is so confident in that collection of efforts and opportunities that it told analysts to expect average annual revenue growth of 5% to 7% by 2025.

Cloud Outlook Comes Into Focus

“I know in the past there’s always been this ambiguity externally of what cloud really means to Cisco’s business. It’s positive. We continue to be confident in cloud as a significant growth driver for our business,” Centoni said. She also called out “strong alliances” with Amazon Web Services, Google Cloud, and Microsoft Azure. 

Robbins again admitted Cisco was effectively locked out of the hyperscale infrastructure business for multiple years, but it committed to insert itself into the next architectural transition. The segment now presents Cisco with a strong contributor to long-term growth due to multiple investments and innovation in that space, he said.

“Think about the length of time that we were locked out of the last one [transition],” he said. “These architectural decisions are multi-year decisions.”

Multiple tailwinds and technologies underpin Cisco’s growth strategy, Centoni explained. “Everything we build uses a cloud-first and app-centric approach,” she said. “Every product in our portfolio, if it can be, is cloud managed, cloud-delivered, offered as a service.” 

This changes the composition of Cisco’s business, she added.

Cisco Claims Business Predictability Success

Despite that rosy outlook, there are areas where Cisco’s growth rate underperforms competitors, and analysts challenged executives to explain reasons for that gap, particularly in security. Robbins didn’t contend with that assessment but noted that competitors growing in security faster than Cisco are almost entirely positioned around software-based portfolios.

Cisco’s hardware-based network firewall business is also materially larger than some of its competitors in security, he said. The comparisons are also lopsided due to uneven scale and the blended nature of hardware and software in Cisco’s security business, Robbins explained.

“I think the innovation that the team has planned over the next year will continue to improve our hand, and in areas where we need to be competitive we’ll be more competitive in the next 12 months,” he said.

“This existential threat that was cloud five years ago has now become a driver of not only our overall business as well as the transformation, which is contributing to the subscription space,” Robbins concluded.

The original intent of Cisco’s plan to sell more software and subscription-based services was to provide the company with more predictability and visibility into its business, and its increased financial performance guidance is a statement on the success of that strategy, he said.