Cisco chips away at product backlog however challenges stay

Cisco is getting extra merchandise out the door, because of important product redesigns and relentless efforts by its supply-chain crew to handle part shortages, however the state of affairs remains to be difficult.

“Whereas elements for just a few product areas stay extremely constrained, we did see an general enchancment within the provide chain,” stated Cisco CEO Chuck Robbins throughout a name with monetary analysts to debate the seller’s second-quarter outcomes. 

Cisco lowered its backlog 6% sequentially within the second quarter, nonetheless whole backlog grew yr over yr, Robbins stated, although he did not cite a precise greenback determine. The corporate nonetheless expects to have a backlog that’s roughly double what it could usually be on the finish of the yr. (In February of final yr, Cisco stated its product backlog was valued at almost $14 billion.)

Cisco’s software program backlog stays round $2 billion, which it reported final yr.

“Mixed with the aggressive actions our provide chain and engineering groups took to revamp a whole bunch of our merchandise, we elevated product deliveries and noticed important reductions in buyer lead instances,” Robbins stated. “Elevated channel inventories additionally declined as our companions had been capable of full buyer initiatives.”

“The rise in provide is the outcome of a lot of arduous work by a lot of folks inside the firm, and I suppose it places us in a higher place than many of our friends in the trade proper now from a provide chain standpoint,” stated Cisco CFO Scott Herren.

Cisco had a stable second quarter, reporting income of $13.6 billion, which is up 7% yr over yr. Its software program and software program subscription revenues grew 10% and 15% respectively.

Provide chain issues have triggered main networking gamers together with Cisco, Juniper, and Arista to revamp or reengineer some merchandise in an try to beat part shortages and ship merchandise to prospects. Consultants say plenty of smaller, considerably older elements of switches and routers are inflicting probably the most issues.

A few of Cisco’s rivals have likewise stated they’re nonetheless grappling with provide points and anticipate that to proceed by the primary half of the yr, at the least.

“Whereas we skilled some enchancment in general part provide within the quarter, shipments remained considerably constrained with lingering shortages on a handful of components,” stated Arista CFO Ita Brennan within the vendor’s latest fourth-quarter 2022 earnings name.

“Look, provide chain hasn’t eased up sufficient for us. Possibly now we have extra demand than others, and that is why we’re feeling it extra,” stated Arista CEO Jayshree Ullal. “Our This fall numbers would have been even higher if provide chain had eased. Going ahead, we anticipate Q1 to be absolutely the worst. The availability chain goes to be easing within the again half of ’23.”

Juniper Networks, too, is optimistic the availability chain may get higher by the tip of the yr.

“We exited 2022 with an distinctive backlog of greater than $2 billion, which is up roughly $200 million from the place we entered the yr and stays nicely above historic ranges,” stated Juniper CEO Rami Rahim within the firm’s fourth-quarter earnings name in January. 

“I completely anticipate backlog to begin to normalize, and I anticipate [backlog] to cut back in 2023,” stated Juniper CFO Ken Miller. “It’s going to begin to cut back, however stay elevated, could be my expectation. And what the brand new regular is is tough to say.”