So far, so good.
It’s only been three weeks since Chuck Robbins became Cisco Systems’ CEO, replacing longtime leader John Chambers, who is now the company’s executive chairman. But at least Robbins’ first earnings call with investors went smoothly.
On Wednesday, Cisco said that its sales rose 3.9% to $12.8 billion in the fiscal fourth quarter compared with the same period in 2014. The company’s profits increased 3.2% to $2.3 billion.
Cisco’s results, however modest, seemed reassuring compared to recent earnings reports from other enterprise giants like IBM (IBM) and EMC (EMC). Both said that revenues and profits had declined.
Wall Street reacted favorably to Cisco’s more upbeat results by sending its shares (CSCO) up 3.9% in after hours trading to $28.98 from $27.90.
Of course, it helps that Cisco set expectations that it could easily beat to make Robbins first few weeks on the job look successful, Jayson Noland, an analyst with Robert W. Baird & Co, said in an interview with Bloomberg.
But not everything was positive. Analysts on the call questioned why the company only saw single digit growth in areas that the company has been investing heavily in, like security. For example, the company bought networking security startup OpenDNS in June for $635 million.
Robbins tried to reassure investors that he expects growth in that area to eventually reach the double digits. He blamed the slower increase on Cisco’s transition to more of a software-based product line based on subscriptions as opposed to simply selling hardware gear.
“Software is now 47% of our security portfolio,” Robbins said. “So I think it’s a transition that we’re pushing.”
Indeed, as Forrester analyst Glenn O’Donnell told Fortune in July, software has never been a strong point for Cisco. But it has been working to create more software products that meet the demands of customers that crave more flexibility and functionality than what proprietary hardware can offer.
As software continues to play a bigger role for Cisco, one analyst asked when investors can expect big revenue increases like the company used to report back when customers were primarily focused on buying hardware products. Cisco CFO Kelly Kramer explained that the time for large revenue growth will eventually come, and that until then, the company has the deep pockets to acquire more security and software-centric companies that can help it gain more momentum.
“This [software] transition is accelerating and will remain a focus for us going forward,” Kramer said.
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