Cisco continues to feel the supply chain squeeze that is impacting its ability to increase profits despite increased consumer pricing, though management does expect that squeeze to soften as a new fiscal year progresses. The supply chain backlog is also clouding any potential market share changes.

The vendor exited its latest fiscal year with $51.6 billion in total revenues, which CEO Chuck Robbins crowed were its second highest ever. That was also a 4% increase over the previous year.

However, Cisco had little momentum coming out if its fourth fiscal quarter as revenues were flat year over year at $13.1 billion, and quarterly growth was down substantially. Robbins was quick to note a rough comparable as its previous Q4 boomed with 30% year-over-year growth.

“Based on that, the year-over-year decline was not a surprise nor is it concerning,” Robbins said. “It's important to keep in mind that in the near term the rate and pace of our revenue growth is much more a function of component availability than on our quarterly product order growth.”

That lack of sequential growth is more noticeable considering Robbins said, “overall supply constraints began to ease slightly at the back half of the fourth quarter and continuing into the start of Q1.”

Supply chain challenges torpedoed Cisco’s Q3 results, though the vendor continues to ramp its backlog of orders. Robbins said Cisco ended the fiscal year with as robust of an order backlog as the vendor has ever had.

Cisco was able to clear some of that backlog during the latest quarter by sourcing hard-to-find components through brokers, though that came at a cost.

“When you buy from the broker network you pay a premium for those, and you see that reflected in the gross margins,” CFO Scott Herren explained, adding that impact will continue into Q1 of Cisco’s new fiscal year.

“And then it gets better as the year goes on, not because – I'm not assuming any price declines or any cost declines coming from our suppliers. … I don't see them lining up to come back and say, hey, good news, Scott and Chuck, we're going to charge you less for the component parts,” Herren said.

Looking ahead, Robbins said the vendor expects higher costs to continue in the short term, “driven primarily by higher component, freight, and logistics costs,” though he “expects this margin pressure to begin to ease as the year progresses.”

Robbins also said the current backlog makes it difficult to assess any overall market share changes. Specifically citing the campus switch market, where it dominates, Robbins said Cisco’s current product updates are not expected to hit the market until later this year, adding “as we work through our backlog, you'll see some share come out.”

“We've got some products that we've been redesigning that we have backlog that we'll begin to ship in mass that will actually flip market share numbers pretty significantly,” Robbins said. “And my competitor is going to be telling you exactly what I'm telling you right now. So it's something you just got to watch over time.”

Robbins did add that Cisco’s security products posted strong results during the latest quarter. This included its firewall, endpoint, and zero-trust businesses.

“That is the No. 1 investment area for the company this year, and … we’re continuing to drive, I think, greater innovation there and evolve that portfolio as we’ve described strategically,” Robbins said. “I think we’ll just continue to see improvement. But this quarter did get a boost from us clearing some backlog in the firewall space.”