10-QPeriod: Q3 FY2021

CISCO SYSTEMS, INC. Quarterly Report for Q3 Ended May 1, 2021

Filed May 25, 2021For Securities:CSCO

Summary

Cisco Systems, Inc. (CSCO) reported its third quarter fiscal year 2021 results, demonstrating a notable increase in total revenue, up 7% year-over-year to $12.8 billion. This growth was driven by a 6% rise in product revenue and an 8% increase in service revenue. The company highlighted strong performance across its geographic segments and product categories, particularly in Infrastructure Platforms, Applications, and Security. Despite a 1.0 percentage point decrease in total gross margin to 63.9%, largely attributed to supply chain constraints and ongoing costs, Cisco delivered a 5% increase in diluted earnings per share to $0.68. The company's strategic shift towards software and subscriptions continues to gain traction, with total software revenue up 13% and 81% of that sold as a subscription. Cisco also continued its capital allocation strategy, returning value to shareholders through dividends and stock repurchases.

Key Highlights

  • 1Total revenue increased by 7% to $12.8 billion, driven by growth in both product (up 6%) and service (up 8%) revenue.
  • 2Diluted EPS grew by 5% to $0.68, reflecting solid profitability despite some margin pressures.
  • 3Total gross margin decreased by 1.0 percentage point to 63.9%, primarily due to supply chain costs and pricing erosion.
  • 4Software revenue increased by 13%, with 81% of software sales now on a subscription basis, indicating a successful business model shift.
  • 5The company saw broad-based revenue growth across its geographic segments (Americas, EMEA, APJC) and key product categories (Infrastructure Platforms, Applications, Security).
  • 6Cisco generated $10.4 billion in free cash flow for the nine months ended May 1, 2021, demonstrating strong operational cash generation.
  • 7The company announced a new 5-year, $3.0 billion unsecured revolving credit facility, underscoring its solid liquidity position.

Frequently Asked Questions

Cisco reported a 7% increase in total revenue for the third quarter of fiscal 2021, reaching $12.8 billion. This growth was driven by a 6% increase in product revenue and an 8% increase in service revenue.

Cisco's total gross margin decreased by 1.0 percentage point to 63.9%. This was primarily attributed to ongoing costs related to supply chain constraints and moderate pricing erosion. Favorable product mix partially offset these impacts.

The company reported a 13% increase in total software revenue, with 81% of that revenue sold as a subscription. This represents an increase of 7 percentage points from the prior year's comparable quarter, indicating continued progress in transitioning to a software and subscription-based business model.

Cisco acknowledges ongoing supply chain challenges, including component shortages due to the COVID-19 pandemic, which have led to increased costs and extended lead times. The company expects these challenges to persist through at least the end of calendar year 2021 and is actively working with suppliers to manage these issues.