Cisco Systems’ product demand is at a record high, but the company hasn’t been able to get these orders in the hands of customers. Now, Cisco says it’s seeing early signs of a loosening supply chain which could open the floodgates for revenue for Cisco and its partners.
The tech giant currently has an order backlog worth well over $15 billion. Once Cisco is able to recognize those revenues — which doesn’t happen until the orders are shipped — revenues will be “off the charts,” according to Cisco partners.
“Once they clear out that backlog? Billions of dollars,” said Todd Carriker, founder and CEO of Rhino Networks, an Asheville, N.C.-based Cisco partner. “In the meantime, we have to weather the storm.”
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The tech giant in May revealed that its backlog was at an all-time high at more than $15 billion, up a whopping 130 percent year over year. The company didn’t disclose numbers for during its most recent fiscal quarter, which ended on July 30, but said it once again had triple-digit backlog growth that fueled the backlog to the highest level ever recorded in the company’s history, said Cisco Chairman and CEO Chuck Robbins during the company’s Q4 2022 earnings call earlier in August.ADVERTISEMENT
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At the same time, Cisco reported Q4 2022 revenue that stayed relatively flat at $13.1 billion compared to the same period a year ago. Cisco posted non-GAAP earnings per share of 83 cents, a decline of 1 percent year over year compared to 84 cents a year ago and net income of $3.4 billion in Q4 2022, a decrease of 3 percent.
Cisco CFO R. Scott Herren said that the company isn’t “demand-constrained” but “supply-constrained.”
“If we could get more supply, we’d be growing more quickly,” Herren said.
Robbins told CRN in June that Cisco has been working behind the scenes to address supply constraints. The company has escalated certain customers and use cases — something that partners could also make a case for in the early days of the crisis — including healthcare, government, and clients with regulatory requirements. Cisco has also worked with partners to prioritize certain orders if they could agree to wait on others, Robbins said.
“In many cases, that conversation is around, ‘I need this stuff, I don’t need that—you can push it out, so don’t worry about that—but I need this stuff if you can help me.’ And so, it’s actually allowed us to, in some cases, serve other customers. It’s just been complicated. It’s a daily triage for our team to try to get this done,” he said.
Cisco tightened up its order cancellation policy once customers began placing the same order across multiple vendors in hopes of getting hardware faster and then cancelling with the other vendors when one came through with a shipping date, Rhino Networks’ Carriker said, a phenomenon that further complicated industry-wide shortages.
Cisco eventually raised prices for some of its products in line with the price increases that were happening across the networking industry with competing vendors in this space, Carriker said.
“They held off longer than most, but eventually, they had to do some price bumps for legitimate reasons, not just to try to make more margin per item. In some cases, they were offsetting the way in which they moved goods,” he said, adding that Cisco was opting to air freight some products as opposed to traditional cargo shipping methods that take much longer. “Air freight is way more expensive than cargo,” he added.
The work may be starting to pay off. Cisco’s executives said in August that it started to see an easing of supply chain constraints toward the end of July and said its component supply headwinds are also showing signs of easing.
Calgary, Alberta-based Long View Systems, a Cisco Gold partner, has been working through its own backlog of Cisco orders. The firm has been educating end customers on when to place orders since the previous 60- or 90-day ordering timeframes for new gear don’t exist right now, said Kent MacDonald, senior vice president of strategic alliances for Long View.
But the solution provider is starting to see improvements, MacDonald said.
“We’re now seeing a lot of our backlog getting assigned shipping dates over the remainder of the 2022 calendar year,” he said.
In the beginning of the supply chain crisis, Cisco was pushing out shipping dates for orders for months down the line — sometimes just days before an order was slated to ship, MacDonald said. “What’s been really been good is the committed dates are not changing to the same degree that they were — the majority of the new committed dates are being honored and now we have predictability,” he said. “With predictability, you can actually plan and execute.”
“We’re still not where we want to be, but it’s something that’s improving as time goes forward,” he said.LEARN MORE: Coronavirus | Routers and Switches | Wireless
Gina Narcisi is a senior editor covering the networking and telecom markets for CRN.com. Prior to joining CRN, she covered the networking, unified communications and cloud space for TechTarget. She can be reached at [email protected].
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