Cisco Systems Inc. said in its fourth-quarter results today that it has finally achieved its goal of deriving half of its revenue from its software and services offerings.

But Cisco’s stock fell 6% in after-hours trading after the networking giant offering light guidance for the next quarter and saying Chief Financial Officer Kelly Kramer will retire.

The networking giant reported a profit before certain costs such as stock compensation of 80 cents per share on revenue of $12.15 billion, down 9% from a year ago. That was better than expected, with Wall Street looking for a profit of 74 cents per share on $12.08 billion in revenue.

For the full year, Cisco reported a profit of $3.21 per share on total revenue of $49.3 billion, down 5% year-over-year.

Cisco has found itself in a tough spot this year with the onset of the coronavirus pandemic. While much of the technology sector has benefited as the economy moves online and enterprises rely more on software to keep their businesses growing, Cisco has struggled to keep pace.

That’s because most of its business is still centered on hardware, selling expensive network switches and routers for company data centers. But demand for those offerings is being challenged by the rise of big public cloud providers such as Amazon Web Services Inc. and Microsoft Corp., and Cisco’s software and services revenues haven’t been able to make up for the revenue shortfall.

In a conference call with analysts, Cisco Chief Executive Chuck Robbins (pictured) said some of the company’s customers have accelerated their moves to multicloud information technology architectures.

“While our results reflect the ongoing challenges in the current environment, we executed well,” Robbins said. “As you would expect, the pandemic has had the most impact on our enterprise and commercial orders, driven by an overall slowdown in spending. We are seeing customers continue to delay their purchasing decisions in certain areas while increasing spend in others until they have greater visibility and clarity on the timing and shape of the global economic recovery.”

Cisco’s Infrastructure Platforms business, which includes its switches and routers, reported revenue of $6.63 billion, down 16% from a year ago. CFO Kramer said the unit had suffered from the impact of COVID-19, with smaller customers especially putting off their investments in hardware.

Cisco’s Applications business, which includes sales of its Webex video calling software, added revenue of $1.36 billion, down 9% from a year ago. That happened despite a big increase in adoption for Webex, which prompted Cisco to add more capacity in the quarter. Still, the Applications business is expected to get a boost in future quarters thanks to Cisco’s $1 billion acquisition of the network intelligence firm ThousandEyes Inc. in May.

Cisco’s Services business did a bit better, with revenue staying flat at $3.32 billion. The company reported growth in its maintenance business, as well as its software and support services, but that was offset by a decline in its advisory services business, the company said.

Security revenue came to $814 million, up 10%, while Cisco’s “Other Products” unit added $35 million more.

“The pandemic has also triggered a massive and rapid shift to remote operations and automation to maximize personal safety,” Robbins said on the call. “With this, many customers are increasingly reliant on our broad portfolio of technologies, resulting in another quarter of strong demand for our Catalyst 9000, Security, WebEx and other SaaS-based solutions.”

Analyst Patrick Moorhead of Moor Insights & Strategy told SiliconANGLE that Cisco performed well in the quarter considering the impact of the pandemic on its business.

“The product lines you would have expected to be up, like WebEx, subscriptions and security, were up,” Moorhead said. “Security had a very solid quarter, up 10%. But as you would imagine, the ability to install any noncritical networking gear inside enterprises will be challenged and I believe large enterprises are delaying those.”

Zeus Kerravala of ZK Research said Cisco had been striving toward its goal of pulling in half of its revenue from software and services ever since Robbins took over as its CEO in 2015.

“Areas of strength are what you would expect given the current pandemic-influenced climate,” Kerravala said. “Security was up in double digits with the rest of the products being down year over year with so many people working from home. IT spend has rotated to collaboration and security. It’s tough to get a bead on Webex as it’s bundled into the Applications number, but I suspect Collaboration was OK, although not spectacular given the tough competitors.”

Dave Vellante, chief analyst at SiliconANGLE sister market research firm Wikibon, said that looking ahead, the uncertainty in North America was most notable. “Because the U.S. remains challenged to control the coronavirus, there’s uncertainty in the American market,” he said. “Markets don’t like uncertainty and IT is a victim. We see IT spending contracting by 5% to 8% in 2020 and Cisco is facing challenges as a result especially in its core switching and router business.”

With no end in sight to the uncertainty of the coronavirus pandemic, Robbins said, Cisco will rebalance its research and development investments to focus on what he said are “key areas” of its business, including areas such as cloud security and cloud collaboration, key enhancements for education, healthcare and other businesses, increased automation in the enterprise, the future of work and application insights and analytics. The company will also focus on emerging technologies such as multicloud investment, 5G and WiFi 6, 400-gig, optical networking, next-generation silicon and artificial intelligence.

Robbins told analysts on the call that Cisco’s investments in the above will help to define the next phase of its transformation and allow it to bring the best and most relevant innovations to its customers. The rebalancing of its R&D investments will save the company about $1 billion in costs, he added.

“If it isn’t mentioned in the list above, it will likely get hit with layoffs or a sharp R&D reduction,” Moorhead said. “I believe the list represents where the market is growing and where Cisco has competence.”

Vellante added that Cisco is likely to maintain its habit of buying companies despite the cost savings plans, “to keep disruptive startups in its sights.”

For the next quarter, Cisco said it’s expecting revenue of between 69 and 71 cents per share, with revenue declining by 9% to 11%. Wall Street had earlier forecast earnings of 76 cents per share on revenue of $12.25 billion, a decline of 7%.

“The big concern was the revenue guide,” Kerravala said. “This has less to do with execution and more to do with the uncertainty around the pandemic. Early on, with COVID-19, there was a surge in infrastructure spending as companies bought what they needed to make the transition. Now, most companies are able to have 100% of their people working from home. With no clear end date for the pandemic, lots of IT projects are being put on hold or canceled altogether.”

All that said, analysts think Cisco will see improvement even if takes awhile. “Cisco has a strong balance sheet and throws off a ton of cash so I’m confident it can weather the COVID storm, but there will be more bumps in the road until the COVID situation becomes more predictable,” Vellante said.

Robbins also announced Kramer will be retiring from the company, though she will stay on until a successor has been found. Kramer joined Cisco back in 2012 under the tenure of its former CEO John Chambers, before taking over the CFO role in 2015.

“The weak forecast and loss of Kelly Kramer is what set up the after-hours pummeling that Cisco shares are suffering,” King said. “Investors are hoping for reasons to be optimistic, no matter how faint, so Cisco’s realistic view of the future is likely not what they wanted to hear.”

Constellation Research Inc.’s Holger Mueller said it was  good to see that Cisco is finally weaning itself of hardware sales. “Unfortunately that happens on a shrinking business, and investors would have preferred to see that with all revenue segments growing.”

Photo: Cisco Pics/Flickr