Supply chain problems are easing, says Cisco

Cisco has indicated that supply chain constraints are starting to ease and should continue to improve over the next few months.

The industry has been plagued with component shortages for the past 18 months or so and the channel has been managing inventories and customer expectations during that period.

When the year started, the talk was of the situation improving by the second half and comments made by Cisco’s senior management in a earnings call with analysts will provide some hope that things are getting better in time for a busy fourth quarter.

Cisco’s announcement of Q4 and fiscal year numbers, for the period ending 30 July, was also an opportunity for an update on the supply chain issues.

“After a challenging April due to the Covid-related shutdowns in Shanghai, and the impact on semiconductor and power supplies, overall supply constraints began to ease slightly at the back half of the fourth quarter and continuing into the start of Q1,” said Cisco CEO Chuck Robbins in an analyst call.

“While the component supply headwinds remain, they have begun to show early signs of easing. The decisions we made and the multiple actions we have taken over the past two years are helping to improve our resiliency and will help offset cost inflation. These include adding new suppliers, leveraging alternative suppliers, redesigning hundreds of products to use alternative components with similar capability and targeted price increases, all of which position us for the future.”

Robbins touched on the challenges that were being faced, which as well as supply chain issues included rising inflation, but he talked up Cisco’s ability to weather those storms.

“While our business is not immune to macro trends, we will remain disciplined in our operations, while benefiting from robust multi-year investment trends and the technology transitions,” he said. “Our innovation is helping our customers and partners navigate an increasing amount of complexity, and there is a greater sense of urgency to leverage leading-edge technologies to deliver on their strategic objectives.”

In terms of the numbers, Cisco’s Q4 revenues came in flat year-on-year at $13.1bn, with a 3% improvement for the fiscal year at $51.6bn.

The firm also pointed to its 8% year-on-year growth in Q4 annualised recurring revenue (ARR) at $22.9bn as evidence that the business is continuing to transform.

Given the easing of supply chain constraints, high levels of bookings and a growing inventory waiting to be shipped, Cisco indicated that, looking ahead, it is expecting revenue growth of about 4-6% year-on-year in FY23.

Robbins added: “Full-year product orders and backlog are both at record highs and reflect the strong demand we continue to see for our innovation and the overall value we bring to our customers as they accelerate their digital transformation.”