Cisco reported better than expected Q2 results, with the performance of its business divisions reflecting changing workplace trends during the coronavirus pandemic.
Overall revenues remained static at $12 billion, but product revenue fell by 1% to $8.6 billion as sales of networking infrastructure, such as switches and business routers, fell by 3% to $6.4 billion.
The drop can be explained by the closure of offices due to lockdowns and the wider macroeconomic uncertainty surrounding the pandemic. Many organisations are delaying purchases of new equipment and wider upgrade projects because the immediate need isn’t apparent - instead focusing on online collaboration.
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Cisco Q2 results
However, conversely, this trend has increased demand for Cisco’s services and software as customers pivot towards flexible working and need to support a disparate workforce with video conferencing tools like Webex. Application revenues remained static, but security sales rose by 10%. Meanwhile services income rose by 2% to $3.4 billion.
In a call with investors, Cisco CEO Chuck Robbins suggested early predictions that many organisations would abandon offices were wide of the mark and that many businesses will operate a ‘hybrid environment’ that comprises physical offices and home workers.
This new model, along with the advent of new networking technologies like Wi-Fi 6 and customer’s wider digitisation efforts, should increase sales across the company’s entire portfolio and allow the infrastructure division to rebound. The reopening of the hospitality industry will also help and the fact that Q3 covers an extra week should improve year-on-year performance too.
“As companies look to prepare their offices for the return [of staff] … we believe that will require switching infrastructure as people … begin to put load on those wireless networks,” said Robbins. “We also believe that every meeting in the future is going to be a hybrid meeting, even when people are back in the office. You'll have people in the office and you'll have people remote.
“And in order to accommodate that, we suspect most of our customers will be putting video units in every conference room they have, which, again, will also accommodate the hybrid work model but will also drive bandwidth requirements, which could lead to switching infrastructure. So that's the way we see it playing out over the next few months.”
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