Cisco now generates almost three in every 10 dollars of sales from recurring revenue streams. The vendor revealed its pivot towards an annuity model following the publication of fourth-quarter results which showed the company put an extra $1.75bn on its bottom line over the course of its 2016 fiscal year.
For the three months to 30 July, Cisco’s net profit rose by almost $500m year on year to $2.81bn, despite revenue declining 1.6 per cent to $12.64bn (€11.17bn). The full-year picture told a similar story, with sales flat at $49.25bn but net income leaping by a fifth to $10.74bn.
One area that is growing for the networking titan is its software and subscription-based business, which it claims grew revenue by 33 per cent in Q4. Chief Financial Officer Kelly Kramer stated that Cisco’s top line is now 28 per cent drawn from recurring revenue streams, an increase of three points on the corresponding period.
“In terms of the margins, this has been a huge focus for us all quarter long and it is really great to see that we actually had our margins – gross margins and operating margins – up year over year for us,” said Kramer. “It’s part of what we’re driving with our shift to software. Those businesses have great margins and it’s part of the overall transition. In terms of when do we change our model or our guidance, I think that will come over time as we make bigger shifts at the company level. But that is our goal as we shift to more software that has those nice, great margins.”
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