Cisco as a service: Subscription focus helps stock turn around after earnings

Excerpts from an article by Jeremy C Owens on MarketWatch

Cisco Systems Inc. has been spending big on software to boost its reliable recurring revenue, but the networking giant said Wednesday that it hopes to upend its core business with a similar approach as well.

Cisco CSCO, +0.04% revealed a fifth consecutive quarter of declining revenue with its fiscal second-quarter report, though Chief Financial Officer Kelly Kramer pointed out in an interview with MarketWatch that the previous four quarters’ declines were affected by the divestiture of its set-top box business.

Notably, Cisco executives also outlined plans to convert more of the company’s hardware revenue to the type of subscription plans that are commonly associated with software. Cisco’s focus on software has partly been fueled by a desire for recurring revenues, which Kramer revealed grew 9% year-over-year to 31% of total revenue.

While much of that recurring revenue is for software, Kramer also said that about 10% of product revenue is now of a recurring nature. While most hardware is sold much like consumers buy routers or computers — by paying the full cost up front — Cisco is looking to find ways to bring the subscription model to more of those types of sales.

“We’re trying to find new ways to do that in networking,” Kramer said in an interview, mentioning the model of acquired company Meraki, which bundles hardware with subscription software, and the new Spark-branded smart whiteboard the company introduced last month.

Read the full article on MarketWatch.

And read Zuora CEO Tien Tzuo’s piece It’s Not a Software Story: It’s a Business Story on why companies, big and small are transitioning to a subscription model.

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