There is no question that digital transformation is accelerating at a rapid pace, with so much of what each of us do every day reliant on connections. This is leading businesses and governments around the world to deepen their focus and remain clear-eyed about their goals, to stay ahead of the curve and plan for the future.
This is certainly true for us at Cisco – and the groundwork we have laid for the past six years, since I took over as CEO, has positioned us well. We’ve been deeply focused on our business transformation, accelerating our innovation, committing to fuel our purpose to power an inclusive future for all, and making Cisco a great place to work. This strong foundation has enabled us to build incredible momentum as we look to the big opportunities ahead.
As organizations plan for their futures, they want to create trusted hybrid workplaces as well as collaborative and engaging experiences for their customers and employees. Enterprises are also increasingly seeking digital and cloud-enabled services to move with greater speed and agility. A number of critical trends and transitions are also converging on this moment: Hybrid work, hybrid cloud, webscale, cloud security, 5G, WiFi 6 and 400G, full-stack observability, IoT, and edge. These are all tailwinds for Cisco as we drive increased digital agility for our customers.
We are truly on the verge of the accelerated digital revolution – a time at which the real, tangible capabilities that technology enables are being realized across every industry – and we are well positioned to capture the opportunity. The technology that Cisco builds is powering the modern, secure infrastructure that sits at the heart of this revolution. With the depth and breadth of our hardware, software, silicon, and optics solutions, we believe that we have all that is needed to help companies adopt modern application architectures, shift to hybrid work and hybrid cloud, help secure their enterprise, as well as help meet their ESG goals.
Successful Business Transformation
I am confident about the possibilities ahead, because over the past several years we have not only set goals for ourselves with our business transformation, but exceeded many of them. In FY17, we set a goal that we would achieve 30% of our revenue from software within the next three years. We achieved 29% in FY20, and within that, subscription revenue represented 74%, which was well ahead of our target of 66% we set in FY17. For perspective, software and service represented 51% of our FY20 subscription revenue, which also exceeded our goal. In fiscal 2021, over 53% of subscription revenue came from software and service – clearly highlighting our success with this transformation.
With our Q4’FY21 software revenue coming in at $4 billion, we now have an annual run rate of software revenue at $15 billion – with 81% of this sold as a subscription – making us one of the top software companies in the world. In addition, our remaining performance obligations in Q4FY21 were over $30 billion for the first time – a key metric for a software and SaaS company.
Our focus on subscriptions is critical, because it enables us to deliver our innovation faster for our customers while providing more predictability in our business for our shareholders. Having this level of visibility is what has allowed us to offer our shareholders annual guidance and we are now targeting a compound annual revenue growth rate of 5% to 7% through fiscal 2025.
Strategy for Growth
We have also designed a strategy to drive our growth around six key areas:
- Secure, Agile Networks
- Optimized Application Experiences
- Hybrid Work
- Internet for the Future
- End-to-End Security
- Capabilities at the Edge
We will provide insights into our revenue results in these product categories giving us the ability to be more transparent about how our innovation is able to drive long-term value and growth.
Delivering the best technology and experiences to our customers and partners is fundamental to what we do, and our goal is to consistently focus on their ability to reimagine their applications, power hybrid work, secure the enterprise, and transform their infrastructure. To deliver on those priorities, we have built a portfolio designed for the modern world, and driven compelling new innovation from Cisco Plus and the Webex Suite, to Silicon One and Secure X, just a few examples of key technologies that we have provided over the past few years. This is also just the beginning, as we continue to focus on full-stack observability, cloud-native technologies, SASE, and many other areas, and deliver more innovation in the months and years to come. In addition, we have offered choice to our customers, giving them flexible consumption models, and allowing them to determine how best to purchase and consume the technology they desire.
All the work we do is underpinned by our purpose – to power an inclusive future for all. This defines our actions, manifests in our innovation, and guides the way we engage with cities, countries, customers, partners, and governments around the world. Our focus extends from providing technical education through our Networking Academy program, to focusing on how we can make a difference in fighting climate change. In fact, last week, we announced that Cisco is committing to reach net zero across all scopes of greenhouse gas (GHG) emissions by 2040, including our products, operations, and supply chain. We also commit to reaching net zero emissions for all of our global Scope 1 and Scope 2 emissions by 2025.
We also rely on our purpose as we develop our technology. For example, Silicon One is capable of delivering high bandwidth and low power, enabling webscale data centers to maximize energy and carbon efficiency, and allowing both emerging and developed markets to benefit from new IT services while minimizing the environmental impact from GHG emissions.
With all that we are poised to do, I am incredibly optimistic about the future and confident in our ability to deliver. The opportunity before us is immense, we see huge potential for growth, and we are well-positioned for the years ahead.
Simply put, Cisco was built for this moment. We believe we have the best team in the business, and we are fully committed to driving incredible growth and value for our customers, partners, employees, and shareholders. I am excited to see what the future will bring – and I can’t wait to see how Cisco will bring that future to life.
Forward Looking Statements
This blog post may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding future events (such as statements regarding our growth and strategy, our software subscription transformation, long-term financial targets, and ESG commitments) and the future financial performance of Cisco that involve risks and uncertainties.
Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results due to a variety of factors, including: the impact of the COVID-19 pandemic and related public health measures; business and economic conditions and growth trends in the networking industry, our customer markets and various geographic regions; overall information technology spending; manufacturing and sourcing risks; and other factors listed in Cisco’s most recent report on Form 10-K. In addition, Cisco’s forward-looking financial targets do not represent projections or guidance for a particular period, but rather long-term targets management utilizes in managing the business and actual results for a particular period may differ materially.
Any projections in this blog post are based on limited information currently available to Cisco, which is subject to change. Although any such projections and the factors influencing them will likely change, Cisco will not necessarily update the information, since Cisco will only provide guidance at certain points during the year. Such information speaks only as of the date of this blog post.