Cisco customers and channel partners continue to struggle with lengthy delays on orders, with the company admitting that “backlog levels for both our hardware and software continue to far exceed historical levels”.
Cisco’s Chief Financial Officer (CFO) Scott Herren told investors on a Q1 2023 earnings call: “As we navigated a complex supply environment, we were able to increase our shipments this quarter, resulting in about a 10% decrease in total backlog sequentially, which remains at the second highest level we’ve seen.”
That’s pushed some customers to explore other vendors as they look to who has inventory. Others are adapting which products they buy from Cisco, opting for Catalyst 9300 instead of the 9200 which can be shipped faster. (As with CPU shortages over the past year, premium products have got priority in the supply chain.)
Cisco recently put out a note to frustrated customers and partners on the issue.
Cisco backlogs: Lead times diverge
CEO Chuck Robbins put a positive spin on Cisco supply chain issues on the November 17 earnings call, saying: “We are encouraged by what we are seeing with modest improvement in certain component availability… The redesign of many of our products has also helped bring supply stability and more resiliency.”
Pressed for detail, he added: “The range on the products is very wide right now.
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“ We still have a couple of product areas that we have component issues that we’re doing some work, and I think we’ve got probably one more quarter before we start improving those. We’ve got other products like we have certain firewalls that are down to three-week lead times. We have some of the products we’ve redesigned that I’ve talked about before. It went from 40 weeks to 12 weeks and will continue to improve.”
“I think we made improvements in roughly half of the portfolio.”
Cisco restructuring “really a rebalancing”
The notes came amid a broadly positive set of results for Cisco, which reported revenues of $13.6 billion, up 6% year-on-year. Net income was $2.7 billion, down 10%. Software subscription revenue – a key priority for the company – was up 11%, but Cisco took a $600 million hit on restructuring and layoffs announced Friday.
The company is widely reported to have cut around 5% of its workforce, or 4,100 people. Executives declined to share detail on that on the call ahead of breaking the news to staff the following day, but CFO Scott Herren told analysts that the Cisco restructuring was “focused on prioritizing our investments across our highest growth opportunities and rightsizing our real estate footprint to help maximize long-term value.”
He added: “Don’t think of this as a headcount action that is motivated by cost savings. This really is a rebalancing. As we look across the board, there are areas that we would like to invest in more… our move to platforms and more cloud-delivered products. But we’re also going to maintain our financial discipline as we do that. And so, this is about just rebalancing across the board. In a perfect world, you’d have a 100% skill match, and you can… just move [staff] to where we need to invest. And unfortunately, it’s not a perfect world.”