Cisco reports solid Q2, builds up major product backlog

Cisco on Wednesday published better-than-expected second quarter financial results, reporting strong product order growth as well as a major product order backlog. 

All told, Cisco’s Q2 non-GAAP earnings per share came to 84 cents on revenue of $12.7 billion, up 6% year over year.

Wall Street was expecting second-quarter earnings of 81 cents per share on revenue of $12.65 billion.

“We continue to see incredibly strong demand across our portfolio, emphasizing the criticality and relevance of Cisco’s innovation,” CEO Chuck Robbins said in a statement. “Our robust order strength, record backlog and double-digit growth in annual recurring revenue position us well to deliver growth.” 

Total product order growth in Q2 was up 33% year-over-year, making it the third consecutive quarter of year-over-year product order growth of 30% or higher. Enterprise orders growth accelerated to 37%, and webscale orders grew over 70%.

However, Cisco had an all-time high product backlog of $14 billion, increasing more than 150% year-over-year. Within that amount, the software backlog almost doubled to more than $2 billion. 

“Our incredibly strong demand continues to outpace supply, expanding our backlog of products, software and services,” CEO Chuck Robbins said in on a conference call Wednesday. “Our supply chain team continues to take aggressive action through strong inventory positions, deepening supplier relationships, qualifying alternative components and increased used of expedited freight. There are still significant constraints with semiconductors preventing us from completing manufacturing of some of our products, and that remains a headwind to revenue growth despite very strong demand.”

Product revenue was up 9%. Product revenue performance was led by growth in Secure, Agile Networks up 7%, Internet for the Future up 42%, End-to-End Security up 7%, and Optimized Application Experiences up 12%. Hybrid Work was down 9%.

Reflecting Cisco’s transformation to a software and subscription-based business, total Annualized Recurring Revenue (ARR) came to $21.9 billion in the second quarter, up 11% year-over-year. Software revenue grew to $3.8 billion, and 80% of software revenue was subscription-based, up 4 percentage points year-over-year. Total subscription revenue grew to $5.5 billion, representing 44% of total revenue.

For the third quarter, Cisco expects revenue growth of 3% to 5% year-over-year and an EPS between 85 cents and 87 cents. The market is expecting an EPS of 86 cents. 

For the full FY 2022, the company expects revenue growth of 5.5% to 6.5% and an EPS of $3.41 to $3.46.