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Cisco Shares Rise as Q4 Beats Street Estimates on Services, Software Growth

The Chuck Robbins era is off to a good start.

Ken Wolter / Shutterstock

Shares of networking giant Cisco Systems rose by more than 3 percent after hours as the company posted fourth-quarter results that beat the estimates of analysts.

Cisco reported a per-share profit of 59 cents on a non-GAAP basis, with revenue of $12.8 billion. Analysts surveyed by Thomson Reuters had expected Cisco to report earnings of 56 cents a share on revenue of $12.7 billion. Sales rose 4 percent year-on-year, and net profit, at $3 billion, rose by more than 6 percent.

Cisco finished its fiscal year with sales of $49.2 billion, up 4 percent. The company said it expects sales in the first quarter of 2016 to rise in the range of 2 percent to 4 percent and looks to book per-share profit of between 55 cents and 57 cents.

It was the first earnings report at Cisco under new CEO Chuck Robbins, who took over the reins of the company earlier this month. In a statement, he called out deferred revenue, where Cisco charges for its products as a service rather than an up-front sale. Deferred revenue, was $9.8 billion for the quarter up 4 percent and $15.2 billion for the full year, up 7 percent, driven by sales of subscription and software products.

“I’m particularly pleased with the strong growth of deferred revenue, which shows we are very effectively driving our business to a more predictable software-based business model, at the same time as growing revenues and earnings,” he said in the statement.

Sales in the Americas region grew the most, rising by 7 percent year-on-year to $7.8 billion. Sales in Europe and in the Asia Pacific regions were flat.

Cisco’s biggest business unit, its switching equipment unit, rose by 2 percent to $3.7 billion. Routing rose 3 percent to about $2 billion. Collaboration — its business of selling software like WebEx and similar products — rose 14 percent to nearly $1.1 billion. Service provider video, a unit that includes the TV set-top box business that Cisco agreed to sell to France’s Technicolor earlier this month, fell 7 percent to $994 million. Sales of data center products rose 14 percent to $880 million.

Cisco exited the quarter with $60.4 billion in combined cash and short-term investments. It spent $1 billion on share repurchases during the quarter, and $4.2 billion for the year. It paid a combined $4.1 billion in dividends during the year.

Update: In an interview with Re/code and echoing what CFO Kelly Kramer said on a conference call, Robbins said Cisco is likely to keep up its pace of acquiring companies to spur further growth. All that cash will come in handy. “Everyone is focused on the changes that we’re driving since I came on board, but I’m also aware that there’s no reason to change the things that work,” he said. “Our mergers and acquisition strategy has worked. It’s one I don’t feel compelled to change.”

One fairly recent Cisco deal that’s worth revisiting in light of those comments is Meraki, the Wi-Fi networking outfit with a cloud-based management service attached to it. Cisco paid $1.2 billion for it in 2012. One thing it drives, Robbins said, is deferred revenue. Where Cisco has historically focused on the sales of gear, now it’s going after sales that are more like a service or subscription. While Meraki drives some gear sales, it also brings with it a subscription business, and thus more deferred revenue, which makes income easier to predict and less subject to seasonal jolts.

“Our customers want to consume our technology in a different way than they used to,” Robbins said. “And our shareholders want to see a more predictable financial model from us.” Cisco bought Meraki when it was on a $100 million annual run rate, and now it’s on its way to $1 billion a year, he said. Here’s a hint: If there’s a service component to a potential target business, expect it to get a closer look.

So continuing a tradition that first started with ex-CEO John Chambers, it’s time to pick the song that personifies Cisco’s quarter. This is a running gag I started back in 2011, and because it’s fun I’m inclined to continue it. This time I asked for some suggestions on Twitter too, so there’s more than one.

My first thought was to use “New Kid In Town” by the Eagles, because as the new CEO, Robbins is exactly that. Nice, but predictable.

https://www.youtube.com/watch?v=60bzbfHP1Hs

A suggestion from Twitter: Sheryl Crow’s “A Change Would Do You Good.” Not bad, I say.

https://www.youtube.com/watch?v=GDwLPMOzHLY

But this one I think gets to the heart of the matter: Robbins has repeatedly sounded aggressive notes around shaking Cisco up, whether it’s around divesting businesses that aren’t paying off or acquiring new promising ones. If anything musical lines up with that vision, it’s the two-fisted optimism of Bachman-Turner Overdrive’s “You Ain’t Seen Nothing Yet.”

https://www.youtube.com/watch?v=7miRCLeFSJo&feature=youtu.be

This article originally appeared on Recode.net.