Cisco Systems reported mixed results for the fourth quarter and full fiscal year 2024, reflecting ongoing strategic shifts and the broader challenges facing the technology sector. Over the past few years, the networking giant has experienced subdued performance in its core hardware business, prompting a shift towards software and subscription-based services.
In the fourth quarter of 2024, the San Jose-based firm reported $13.6 billion in revenue, marking a 10% decline compared to the same quarter in the previous year. This decrease is part of a broader trend that has been evident since 2020. Product revenues, particularly in traditional hardware segments, fell by 15%, reflecting continued challenges in a market increasingly favouring cloud-based and software solutions over physical networking equipment.
Since 2020, Cisco’s revenue growth has been inconsistent, affected by factors such as supply chain disruptions and a shift in customer preferences towards software and cloud services. For instance, in fiscal year 2020, the firm reported a 5% decline in revenue, followed by modest growth in 2021 and 2022 as it began to emphasise software and subscriptions. However, the growth in these areas has not fully offset the decline in hardware sales, which have historically been the cornerstone of its business.
Adding to these challenges, Cisco announced plans to cut approximately 7% of its workforce, equating to around 5,900 jobs. This move is part of a broader restructuring effort aimed at realigning the company’s resources towards high-growth areas such as artificial intelligence (AI) and cybersecurity. This round of job cuts follows an earlier reduction of about 4,000 positions in February 2024.
Despite these cuts, there were some positive developments in other segments of Cisco’s business. The company has seen growth in its software and subscription services, which now represent more than half of its total revenue. Subscription revenue, supported by the acquisition of Splunk, reached $27.4 billion in fiscal 2024. The company is also making significant investments in AI, including a $1 billion initiative to support tech start-ups and a partnership with Nvidia to develop AI infrastructure.
The Splunk acquisition, while strategically important, had a short-term negative impact on earnings. The deal added $960 million in revenue for Q4 and $1.4 billion for the full fiscal year, but the associated financing and integration costs reduced GAAP EPS by $0.16 in Q4 and $0.25 for the full year. Non-GAAP EPS was also affected, though to a lesser extent, with a reduction of $0.04 for both the quarter and the year.
Cisco’s gross margins remained robust, with a GAAP margin of 64.4% for Q4 and 64.7% for the full year, reflecting a disciplined approach to cost management and a focus on high-margin areas like software. Nonetheless, these margin gains were not sufficient to offset the overall revenue decline, driven by ongoing challenges in the hardware market.
The company’s guidance for FY 2025 suggests cautious optimism. Cisco expects Q1 revenue to be between $13.65 billion and $13.85 billion, with GAAP EPS forecast between $0.35 and $0.42, and non-GAAP EPS between $0.86 and $0.88. For the full fiscal year, networking giant anticipates revenue in the range of $55 billion to $56.2 billion, with GAAP EPS between $1.93 and $2.05, and non-GAAP EPS between $3.52 and $3.58.
Cisco declared a quarterly dividend of $0.40 per share, payable on 23 October 2024, and also repurchased $2 billion worth of shares in Q4, despite the challenging sales outlook.
