During the fiscal third quarter of 2024, Cisco reported revenues of $12.7 billion (£10 billion) – a 13 per cent decrease year over year.
Splunk’s contribution to the revenues amounted to $413 million (£325 million). The vendor’s total subscription revenue was $6.9 billion (£5.43 billion), including Splunk, marking an increase of 12 per cent year over year. Excluding Splunk, the subscription revenue increased by five per cent.
Cisco CEO Chuck Robbins said: “We have transformed our business model with revenue from subscriptions now accounting for more than half of our total revenue, even before the addition of Splunk.”
With the inclusion of Splunk, total software revenues saw a modest increase of five per cent to $4.5 billion (£3.54 billion). Software subscription revenues expanded by 17 per cent. Without Splunk, the total software revenues declined by four per cent year-over-year.
In comparison, software subscription revenue saw a six per cent rise, as informed by Scott Herren, Cisco’s Chief Financial Officer, to analysts during the call.
The Total Annualised Recurring Revenue (ARR) reached $29.2 billion (£22.99 billion), up by 22 per cent. Splunk’s contribution to this was $4.2 billion (£3.31 billion). The ARR for Cisco, excluding Splunk, grew by five per cent.
Cisco’s product ARR surged to $15.5 billion (£12.20 billion), a 44 per cent increase year-over-year. Without Splunk, the product ARR ascended by nine per cent.
Including Splunk, revenue from security product sales soared by 35 per cent, and observability sales climbed by 27 percent. Herren mentioned that Cisco’s ThousandEyes network services played a pivotal role in boosting the observability sector.
Herren indicated to analysts that the vendor might see a rise in operational costs in the fiscal year 2025, attributed to new channel enablement resources and training initiatives for the Cisco and Splunk sales teams.
He further clarified that this would not constitute “a substantial ramp-up” in integration investment.
“There is investment associated with that integration, and fiscal ’25 is the year we will undertake it,” Herren explained. “This deal was not driven by cost synergies but rather by revenue synergies… We anticipate these revenue synergies to start escalating in the latter half of fiscal ’25, as these are not brief sales cycles. We are preparing our team on how to market Splunk, equipping the Splunk team on Cisco sales strategies, and fully enabling our channel to sell these offerings.”
Chuck Robbins, CEO of the networking behemoth, aims to capitalise on “Cisco’s robust partner and customer ecosystem in markets where Splunk had minimal or no presence” to expand the operations of his new security and observability subsidiary. Conversations with partners have led Cisco to the conclusion that its equipment consumption challenges are nearing resolution.
“With our cohesive platform strategy, extensive global partner ecosystem, and support for hybrid and multi-cloud environments, we are poised to deliver innovation at an unparalleled pace and scale to organisations worldwide,” Robbins asserted during the call.
Robbins also highlighted his employees’ efforts in “synchronising the Cisco and Splunk sales forces and expediting channel enablement procedures for cross-selling and upselling our integrated solutions.” Approximately 5,000 customer accounts have been identified as potentially becoming significant Splunk clients.
“Our sales teams are already forging those connections,” Robbins added.
Splunk CEO Gary Steele has transitioned from Executive Vice President and General Manager of Splunk to the new position of President of Go-to-Market. Meanwhile, Jeff Sharritts, Executive Vice President and Chief Customer and Partner Officer, will depart from Cisco after over two decades of service.
Sharritts is scheduled to leave at the end of Cisco’s fiscal year in mid-July.
Robbins disclosed these executive shifts in a blog post, stating that the vendor is advancing to the next phase in enhancing its 40-year-old Go-to-Market (GTM) engine to become one of the most sophisticated and extensive.
Steele and his team, encompassing sales, partner, and global marketing divisions, “will evolve Cisco’s sales and go-to-market strategies to align with our strategic objectives, meet customer needs, and foster a culture of intense competition, agility, and ongoing enhancement,” Robbins elaborated in the post.
According to the post, the Splunk team will continue reporting to Steele. Steele officially joined Cisco after completing the $28 billion (£22.05 billion) acquisition of Splunk in March.
Cisco anticipates revenues between $13.4 billion (£10.55 billion) and $13.6 billion (£10.71 billion) for the fiscal fourth quarter of 2024. The company forecasts total revenues for the entire fiscal year ranging from $53.6 billion (£42.20 billion) to $53.8 billion (£42.36 billion).
Splunk is expected to contribute between $950 million (£748 million) and $1 billion (£788 million) in revenue, as stated by Herren. For the fiscal year 2025, Cisco projects revenue growth in the low- to mid-single-digit per cent range and anticipates the interest from the Splunk acquisition to become a headwind of approximately $350 million (£275 million) per quarter.
Cisco will also need to invest in operational expenditures to drive “revenue synergies” with Splunk, as Herren mentioned. The operating margins for fiscal year 2025 are expected to align with those of the fourth quarter.
