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Cisco projects growth of 5% to 7% over next four fiscal years as software sales continue to climb

Cisco Systems Inc.’s stock was flat in extended trading Wednesday after the company forecast revenue will grow 5% to 7% over its next four fiscal years, easily outpacing analysts’ projections. 

The network-equipment maker, which historically has gleaned most of its revenue from hardware, such as expensive switches and routers that buttress computer networks, also predicted sales from subscriptions will account for half of Cisco’s revenue by fiscal 2025. To reflect its ongoing digital transformation, Cisco
CSCO,
-0.54%

said it will start reporting two new metrics — annual recurring revenue and subscriptions as a percentage of total revenue — in November.

“We are introducing new metrics because that’s how investors need to think of us,” Chief Financial Officer Scott Herren told MarketWatch on the company’s investor day Wednesday — its first in four years. He noted that 44% of Cisco’s revenue this fiscal year came from subscriptions.

What is more, Cisco is revamping its current product categories, which are infrastructure platforms, applications and security, to five categories that better align with customer needs: secure, agile networks; hybrid work; end-to-end security; internet for the future; and optimized application experiences. The company will break out revenue for each in November.

Cisco’s ongoing shift toward software and recurring revenue is the latest evidence of Chief Executive Chuck Robbins’s overhaul of the Silicon Valley giant to a provider of hardware, software and subscription services as more companies demand hybrid-computing solutions.

Indeed, during investor day, Robbins focused on the company’s $16 billion in annual software sales, making it one of the top software vendors in the world. “We were built for this moment,” he said.

“This is not a pivot. We have arrived and have delivered,” Robbins said. “And now we can continue to accelerate the software growth combined with world-class hardware.”

Cisco’s four-year revenue forecast of 5% to 7% growth would far outstrip the forecasts of Wall Street analysts, who expect it to crest at 6% in fiscal 2022 and then decelerate.

Cisco shares are up 29% so far in 2021; the broader S&P 500 index
SPX,
+0.85%

is up 19% this year.

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