Cisco CEO Chuck Robbins’ efforts to make the company less reliant upon its infrastructure sales and transform it into software powerhouse appears to be getting some traction. The company reported strong fiscal fourth-quarter 2018 earnings, posting quarterly revenues of $12.8 billion, a 6 percent increase year over year, and non-GAAP earnings per share of 70 cents.
For the fiscal year the company reported revenues of $49.3 billion, which is an increase of 3 percent over the previous year.
Wall Street reacted favorably to the results. The company’s stock price closed at $44.85, an increase of 2.2 percent.
Perhaps the biggest star of Cisco’s quarter was its security business, which reported $627 million in revenues, an increase of 12 percent year over year. In addition, the company’s application software business revenues increased 10 percent to $1.34 billion.
Cisco’s infrastructure platform business, which is home to the company’s traditional business of supplying routers and switches, increased 7 percent to $7.44 billion.
Interestingly, the company’s service provider business, which has been struggling for several quarters, reported a 6 percent increase in business compared to the same quarter in the previous year. In fiscal third quarter 2018, Cisco’s service provider business was down 4 percent year over year.
The uplift in the service provider business is notable because just last week it was revealed that Yvette Kanouff, the SVP and general manager of Cisco’s service provider business, would be leaving the company. Kanouff took over the service provider unit in 2016 after the company restructured. Jonathan Davidson, SVP and and GM of Cisco’s service provider networking business, will fill Kanouff’s role.
During a call with investors, Robbins said that the company believes its strategy to reinvent itself using its intent-based networking and automation to revamp its portfolio of products is working. He also noted that multi-cloud adoption by enterprises is changing how IT infrastructure is built and secured, and that’s why it’s important for the company to continue to invest in its security business. Robbins pointed to the company’s recent announcement of its plans to purchase cybersecurity provider Duo Security for $2.35 billion as an example of how it is investing in high-growth areas to make up for the slowing demand for its infrastructure.
Interestingly, Robbins said that the strong performance by the service provider business in the fourth quarter was not necessarily a result of momentum around 5G. He said that although the company heard customers talking a lot about 5G at the Mobile World Congress 2018 conference in February, he doesn’t expect to see momentum from 5G until 2019 and 2020. Instead Robbins said that the boost in business from service providers was due to some spending by a few of the company’s large customers.
“This is a business dominated by large customers,” he said. “When we have several slowing their spending, it looks bad. When they spend, it looks good.”
Nevertheless, Robbins does expect 5G to have a big impact on Cisco because the latency “dynamics” of 5G will create significant demand on the core networks of the service providers.
Cisco executives did provide some guidance for fiscal 2019. The company said it expects revenue to grow between 5 percent and 7 percent year over year. In addition, it expects to report a non-GAAP operating margin in the 30-percent to 31-percent range.