Editor’s note: While corporate revenue continues to decline, Cisco Services’ revenue recovers through software-driven services, says Technology Business Research Analyst Kelly Lesiczka after a review of Cisco’s latest financials reported earlier this week.
HAMPTON, N.H. – Despite Cisco’s corporate revenue declined 4% year-to-year to $12.1 billion in 2Q17, Cisco Services’ revenue grew 1% year-to-year, to $3.1 billion following an increase in software-driven solutions and attached services engagements. Cisco Services contributes 25.6% of total Cisco revenues, improving 120 basis points from 24.4% in 2Q16, driven by the company’s transition to focus on software-driven services as well as investments in cloud and digital technologies.
- VIDEO: Watch an overview of Cisco services at https://www.youtube.com/watch?v=-eL1HGvmLdQ
As Cisco increases innovation efforts and recent acquisitions such as Viptela, to bolster software and automation services we expect the company to further support recurring revenue generation and drive profitability.
Offering integrated suites of software and support services will positively affect Cisco Services’ long-term growth
As Cisco continues on its path to become a company centered on software and services to drive recurring revenue streams, it is simplifying how enterprises purchase software and support services from the company. Cisco’s Enterprise Agreement (EA) that was announced in May bundles software and support services into predefined solution suites using a single licensing agreement for predefined software suites related services.
Channel partners enable Cisco to support above average profitability and efficiency metrics and expand client opportunities
Cisco Services’ continuous use of partners to deliver product-related advisory, implementation and support services enable the company to lead peers in profitability metrics, such as gross and operating margins, and efficiency metrics, such as revenue per employee and operating income per employee. Cisco Services’ gross margin grew 180 basis points year-to-year to 67.8% and estimated operating margin was 39.9% in 2Q17 both exceeding the peer averages of 31.7% and 10.1%, respectively.