Outlook for the future.

Cisco (CSCO) shares rose slightly after the company gave a forecast to increase the share of the more profitable segment in its overall business and gave a revenue growth forecast for 2025. However, Cisco noted problems that have persisted for quite some time.

Cisco (CSCO), the largest maker of networking equipment for data centres and enterprise customers, on Wednesday issued important forward-looking statements to investors.

Cisco shares, up 41.8% in the past 12 months and 28.6% YTD, were up 1.1% in the post-market on Wednesday.

Analysts and stock market investors are today welcoming the company's move to a subscription model for cloud-based software, such as the WebEx collaboration service, and cybersecurity services. Cisco said on Wednesday that it aims to increase the share of software subscription revenues from 44% recorded in FY2021 to 50% by FY2025. A larger share of this segment in the overall business should shape Cisco's more consistent revenue growth, better scalability and higher profitability. Last quarter, Cisco continued its restructuring efforts by acquiring startups Kenna Security and Socio Labs.

At the same time, as the share of hardware sales in Cisco's business remains high, the company is very dependent on supply and fickle demand.

Cisco's outlook

Cisco's forecasts for the current quarter (Q1 FY2022, ending 31 October 2021) are mostly above analysts' average forecasts, but CFO Scott Herren said gross margins are likely to fall due to additional costs associated with supply constraints. For full fiscal 2022, Cisco's earnings forecast is $3.38 to $3.45 per share against analysts' $3.41 forecast, and revenue growth in the 5% to 7% range against 4% or $51.91bn from analysts.

The company has also given a revenue forecast for FY2025 of around $62.9 billion, with an annual growth rate of between 5% and 7%, the same pace Cisco expects for earnings growth, targeting an average of $4.07 per share in FY2025.