With all the talk about recession and the increasing announcements of potential layoffs from large firms like Meta and Google, you’d think demand would be easing. I think it is actually easing but has so outstripped supply that the reduction in demand is having nearly no impact on sales volume as Cisco’s recent financials showcase. Cisco appears to be a showcase of best practices for managing a product and services portfolio during a time of economic and supply uncertainty.
Let’s talk Cisco Financials this week.
When flat is good
We are experiencing an unprecedented number of diverse market problems. We have multiple pandemics surrounding the Covid-19 variants and the recent spread of the Monkey Pox virus, which could evolve to be more viral and hit world markets. We have one major conflict between Russia and Ukraine effectively shutting down raw materials supplies from both countries as well as oil and gas from Russia. And we have what appears to be a massive impending conflict between China and Taiwan that would put the majority of the world’s chip manufacturing capacity at risk and, currently, what appears to be a partial blockade of Taiwan by China.
These are, short of a world war, an unprecedented number of problems that collectively cripple current logistics chains and challenge companies’ ability to meet demand. While these events and the increasing belief that a recession is on the horizon are undoubtedly having some impact on demand, demand is so far over supply that any impact on sales is negligible, and the problems remain on the supply side.
As was initially forecast, Cisco’s revenues should have declined as a result. Instead, they held revenues flat which positively surprised the market and showcased again an impressively strong management team that was able to hold the line against almost unbelievable odds. Cisco’s ability to execute during times like this continues to impress.
Cisco has been identified as <href=”#:~:text=Continue%20Reading-,FORTUNE%20and%20Great%20Place%20to%20Work%20revealed%20their%20annual%20100,Markets%2C%20Salesforce%2C%20and%20Nvidia.”>one of the best places to work, enabling the firm to retain and attract workers in what has been a difficult time for technical staffing. This ability to retain and attract top talent likely goes to the heart of Cisco’s ability to execute at this time because good people and full employment are directly related to strong execution, and Cisco is executing very well.
Cisco has been able to manage manufacturing against supply shortages which has resulted in the increase of finished goods inventories during supply shortages. Rather than dial back manufacturing, Cisco decided to shift manufacturing to what it can build, allowing it to get ahead of future demand for related products and provide it with the ability to shift more manufacturing lines to constrained products once the related raw materials become available.
While collaboration offering demand has shifted as people are pulled back into the office (often kicking and screaming), Cisco’s efforts to allow its client products to cover not only WebEx but Zoom and Microsoft teams has kept these solutions in demand maintaining sales volume for this class.
Cisco’s decision to focus more on security with its Zero Trust portfolio has also paid dividends with that unit showcasing some of the strongest growth in the company. And finally, Cisco continues to demonstrate competitive superiority against peer companies which has allowed it to maintain sales volume in the face of competitive pressures which, for the company, have proven to be far weaker than expected.
Cisco’s strength is less about product and more about operational excellence. Programs like their CDA effort which opens countries to Cisco products and creates loyalty with the related governments remain unique and competitively superior to alternatives. Cisco’s improvements to its collaboration offerings remain market leading as well.
As a result, Cisco is a strong example of how a company can weather multiple global threats and still maintain revenues through execution excellence and should be considered an excellent showcase of related best operation practices. Congratulations to CEO Chuck Robbins and his team for a job very well done during impressively tough times.
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