Among tech giants, Cisco Systems (NASDAQ:CSCO) doesn’t spark much excitement. The world’s biggest maker of routers and switches dominates in a cyclical market, focusing on the low-margin hardware products.
But this is going to change drastically in the next four years. The Silicon Valley stalwart is being transformed into a provider of networking services delivered over the internet and a seller of software.
Revenue from subscriptions will reach 50% of Cisco’s total by fiscal 2025, the company told analysts in a presentation Wednesday. As part of this push, the company is revamping its existing product categories, aligning them more closely with customer needs.
In November, Cisco will start to break out in five categories: secure agile networks; hybrid work; end-to-end security; internet for the future; and optimized application experiences. As the company pursues this shift, annual sales are predicted to increase 5-7% over the next four fiscal years. The higher-margin business will also improve profits, posting a compound annual growth rate for adjusted earnings of around 4% to 7% per year and setting a mid-point 2025 target of $4.07 per share.