To our stockholders,
Fiscal 2022 was a complex year, and I am incredibly proud of how our teams navigated through the many challenges that we saw throughout the year. Thanks to their determination, perseverance, and unwavering commitment to our customers, partners, and to each other, we ended the year strong.
We set several new records for the company including product orders, ending backlog, net income, EPS, Annualized Recurring Revenue (ARR), and Remaining Performance Obligations (RPO). These were strong results, particularly considering the incredibly dynamic environment in which we continue to operate. This tells me that our investments in accelerated innovation, continued strong customer demand, and our ability to execute with excellence, put us in a position of strength for the year ahead, and beyond.
We were delighted to engage with our customers in person once again at Cisco Live and other events throughout the year, and we continue to hear that their technology priorities have become even more urgent. In this massively distributed world of hybrid work and hybrid cloud, the Internet of Things is exploding, more and more devices are being connected via the network, and the cyber threat landscape is shifting and expanding. Our customers need to reimagine their applications, power hybrid work, secure their enterprise, and transform their infrastructure. We are committed to being a trusted partner on their digital transformation journeys and doing all we can to help them succeed.
Navigating through turbulent times
Cisco has been in business for almost 40 years, so we are no stranger to challenging times. The extraordinary events of this past year—including the ongoing COVID-19 pandemic, significant supply constraints, Russia's invasion of Ukraine, and rising inflation—have only reinforced our focus on what matters most: helping our customers and partners, our people, and the communities in which we operate.
It has become clear to me that dealing with increasing complexity is the new reality for all of us. What is also clear is that technology is an essential driver of productivity and economic growth. We have the opportunity—and the responsibility—to leverage the power of technology in this new reality, to continue to drive transformation and to solve some of the world's biggest problems.
I am confident the decisions we made and the multiple actions we took over the past two years are helping to offset cost inflation and improve our resiliency. These include adding new and leveraging alternative suppliers, redesigning hundreds of products to use available components with similar capabilities, targeted price increases, and several other creative solutions, all of which position us well for the future. The combination of these actions with the tremendous efforts of our world-class supply chain and engineering teams, and the investments we have made in building capacity to meet growth, has the potential to drive continued momentum into fiscal 2023.
Investing in innovation
Enterprises everywhere need secure, agile networks that can accommodate distributed users, devices, data, and applications. Our latest cloud-delivered innovations across our networking, security, collaboration, and optimized applications portfolios are designed to help organizations drive productivity and resiliency. They include cloud management for the Catalyst switching portfolio from the Meraki dashboard; a Nexus Cloud SaaS (Software-as-a-Service) offer powered by Intersight to help our customers deploy and manage their Nexus data center networks from the cloud; and the Cisco Security Cloud, designed to be the most open security platform available, enabling customers to connect their end-to-end security architecture.
In fiscal 2022, we unveiled our vision for Cisco Predictive Networks, an industry first predictive analytics engine for network management which will gather and integrate data from many sources, learn patterns to predict user experience issues, and provide problem-solving options. In June, we introduced ThousandEyes WAN Insights, which we will make available to our SD-WAN customers as the first step towards delivering on this vision.
Customers are rearchitecting their applications and they need modern tools to help them do this. We launched Panoptica and Calisti, two new cloud-native, API-first tools for faster and better application development, as well as AppDynamics Cloud, a cloud-native observability platform for modern applications which helps remediate application performance issues with business context and insights.
And, for customers operating mass-scale networks, we introduced an enhanced routed optical networking platform which can help drive savings of up to 45% in power and up to 70% in real estate required for equipment. Our Silicon One based Cisco 8000 routers, the fastest growing product family in Cisco's history, combined with optics from Acacia, create a durable foundation for the development of the Internet for the Future, 400G and beyond.
These innovations, together with many others across our portfolio, are intended to drive simplicity and provide the best unified experience for our customers. Offering our customers choice is an important factor in that experience, and we continue to find ways to do so through flexible consumption models, disaggregating and virtualizing certain technologies, and delivering as much as we can as-a-Service. Cisco+ Secure Connect, which allows customers to quickly deploy Secure Access Service Edge (SASE) and eases day-to-day operations through a cloud-managed platform, is a great example and the latest of several as-a-service offers, and we have more in the pipeline.
Successfully transforming our business
We continue to make solid progress in our business transformation which we believe is strengthening our position in the market by helping us to deliver innovation and choice for our customers in new ways, all while giving us greater visibility, resiliency, and predictability.
In fiscal 2022, we generated over $15 billion of software revenue, 81% of which was subscription-based. Total subscription revenue, including services sold as subscriptions, was over $22 billion, and represented 43% of Cisco's total revenue.
Our subscription revenue drives ARR and RPO which are the best indicators of our progress in our business transformation. The combination of our ARR, RPO and our record backlog gives us excellent visibility and a high degree of confidence in our future revenues.
Living our purpose
Since the beginning, Cisco has focused on innovation, integrity and doing what's right. By operating a successful business, we are empowered to step up to the many societal and environmental challenges we see around the world. We redefined our purpose—to power an inclusive future for all—in 2020, and we couldn't have imagined how relevant it would be in today's world. To help fulfill our purpose, we leverage our technology and catalyze our networks, partners, and people to make a positive impact in communities worldwide and on the planet. Our purpose guides us to focus our efforts where we know we can make most impact.
This past year, we committed to reaching net-zero greenhouse gas emissions across our value chain by 2040. We recently refined our goals and near-term targets and were one of the first technology and hardware equipment companies to have its net-zero goals validated under the Science Based Targets initiative (SBTi) Net-Zero Standard, the world's first framework for corporate net-zero target setting in line with climate science. The use of our sold products is the greatest contributor to our overall carbon footprint, so improving the energy efficiency of our hardware and solutions—by integrating Silicon One across our portfolio, for example—is a high priority, as it also helps our customers meet their own emissions reduction goals.
We also remain committed to doing all we can to provide inclusive access to training and education in the key digital skills that are in such high demand across all industries. In the 25 years since we launched the Cisco Networking Academy in 1997, we have reached more than 17 million students, 95% of whom say the program helped them obtain a job or educational opportunity. This past year, to accommodate even more students, we created SkillsForAll.com, providing free online technology courses backed by Cisco's expertise and connected to real career paths in the digital economy.
I'm incredibly proud of how our teams around the world have rallied around our purpose. During this past year, more than 80% of employees have given back to their communities. I have no doubt that our purpose-driven culture is a primary reason why Cisco has been named the number one Great Place to Work in 14 countries around the world.
While we continue to make good progress on our priorities and work in service of our purpose, we recognize there is always much more to be done to ensure that people and ecosystems can thrive together on a liveable planet.
Confidence in the future
As we enter fiscal 2023, we see tremendous opportunity ahead. While we expect supply chain challenges to persist, we are encouraged by the early signs of supply easing that we saw at the end of fiscal 2022, and we expect to see gradual improvements throughout the year that will enable us to get our products into our customers' hands faster.
We will continue to focus on simplification as we develop our platform strategy and offerings, while helping to drive sustainability in our products. There is a greater sense of urgency from our customers and partners to leverage leading-edge technologies to deliver on their strategic objectives and our innovation is helping them navigate an increasing amount of complexity.
While no company is immune to macro trends, we are fortunate that there are currently more technology transitions occurring concurrently than I've seen in 20 years. Given the strength of our portfolio, our continued investment in accelerated innovation, and the commitment of our teams, we believe the multi-year megatrends of hybrid cloud, hybrid work, security, IoT, 400G and beyond, 5G and Wi-Fi 6, as well as the move towards application observability, will provide tailwinds to our long-term growth. We also believe that the focus on sustainability and the climate crisis will continue to be positive for our business. We feel that Cisco is well positioned for whatever the future may hold.
Thank you for your continued support.
Chuck Robbins
Chair and Chief Executive Officer
October 13, 2022
Read the original letter here.
