Cisco Systems (CSCO) reported on Wednesday a top- and bottom-line beat with its fiscal fourth-quarter results. Revenue of $13.1 billion (+8% YoY) edged the consensus of $13.039 billion, and adjusted earnings per share of 84 cents (+5% YoY) beat the consensus by two cents.
"We continue to see great momentum in our business as customers are looking to modernize their organizations for agility and resiliency," CEO Chuck Robbins said in the release. "The demand for Cisco technology is strong with our Q4 performance marking the highest product order growth in over a decade. With the power of our portfolio, we are well positioned to help our customers accelerate their digital transformation and thrive in a hybrid world."
According to the report, adjusted total gross margins were 65.6%, up 60 basis points year-over-year and higher than estimates of 64.91%. Product gross margins were 65%, up 180 basis points YoY, while services gross margin was 67.4%, down 240 basis points. Cisco said the increase in product gross margin was driven by productivity improvements from lower freight and other costs, partially offset by relatively modest price erosion. Margins are one of the key items right now, as the company continues to manage through component shortage problems and supply chain constraints.
Supply challenges and cost impacts are expected to continue at least through the first half of their fiscal year and possibility into the second half, said Robbins on the call. And while price erosion was a theme in the recent quarter, Cisco implemented on Aug. 7 a price increase in a few product areas that have seen higher component costs. Management expects the benefit of these higher prices will come into play in the second and third quarters vs. what they see in the first. Digging deeper, product revenue increased 10% YoY to $9.716 billion, a beat vs. the $9.455 billion consensus, while service revenue grew 3% to $3.410 billion, lower than the $3.563 billion expectation.
Breaking products down further, infrastructure platforms revenue increased 13% YoY to $7.546 billion, strongly exceeding estimates of $7.113 billion. Switching had a strong quarter driven by a double-digit increase in campus switching, which is led by Cisco's Catalyst 9K and Meraki switching offerings. Wireless had a strong quarter as well thanks to the continued ramp of Cisco's Wifi 6 products and Meraki wireless offerings. Data Center revenues declined, however, primarily because of servers due to continued market contraction.
Applications revenue fell 1% to $1.344 billion, missing estimates of $1.461 billion. On the bright side, recurring subscription revenue within WebEx grew 9% in the quarter. Also, Cisco saw growth within its IoT software, AppDynamics, cloud contact center and cloud calling platforms.
Additionally, Security revenue grew by only 1% to $823 million, missing estimates of $905 million. Within security, Cisco's cloud and Zero Trust portfolio grew revenues by more than 20%, and total recurring subscription revenue grew 13% in the quarter.
Overall, Management called the product portfolio performance "very balanced."
"As customers prepare for office reopenings and hybrid work, they are increasing their investment across our networking, cloud security and unified communications portfolios. In Q4, we saw double-digit revenue growth in campus switching, Catalyst 9000, high-end routing, wireless and in our Zero Trust solutions, along with strength in our security endpoint portfolio. We also had very strong adoption of our Acacia optical solutions driven by increasing customer demand for leading-edge technology to address their growing bandwidth requirements," said Robbins.
Total software revenue in the quarter was over $4 billion, representing growth of 7% sequentially and 6% YoY. Within software, subscription revenues grew 9% in the quarter and 15% for the full year. Software subscriptions as a percentage of total software revenue -- one of the more meaningful metrics for assessing the company's transformation -- now sits at 81%, which is flat quarter-over-quarter, but an increase of three percentage points YoY.
Recall, the focus on subscriptions as a percentage of software sales is crucial. That's because it further speaks to the company's transition from hardware -- which has inherently lumpy sales cycles -- to software. Software tends to be in high demand from customers, has a smoother and visible recurring revenue stream, typically is higher margin, and, importantly, is less driven by shifts in the macroeconomy. We consider this ongoing transition as a price-to-earnings multiple expansion opportunity. It's also worth pointing out that Cisco's remaining performance obligation, or RPO, ended the quarter at $30.9 billion, up 9%. 53% of the total RPO is short term, meaning Cisco expects to recognize this revenue in the next twelve months.
By geography, total revenue (product + service) from the Americas increased 8% YoY; sales in Europe, the Middle East and Africa (EMEA) increased 6%; and Asia Pacific, Japan and China (APJC) revenue grew by 13% YoY.
Focusing on order growth, which we view as one of the best ways to evaluate where the business is headed, the company followed up last quarter's impressive 10% YoY growth with another exceptional quarter of orders. This is a great sign of what's to come at Cisco.
Total product orders increased 31% YoY, or 17% over pre-COVID, 2019, levels and the highest levels seen in over a decade, with strength across all areas of the business and geographies, driven by stronger customer investment and substantial network upgrades to help modernize and secure their environments to support the new way of working.
Orders in the Americas were up 34%, while EMA was up 24%, APJC increased 29%, and total emerging markets up 25%. By customer segments, commercial orders were up 41%, service provider was up 40%, enterprise returned to growth up 25%, and public sector increased 22%. Cisco's web-scale business (cloud providers) saw orders increased over 160%, a new record for the company. On a trailing four quarter basis, Cisco's webscale orders have increased 80% driven by customers adopting products across the portfolio, as well as early traction on their 400-Gig solutions.
Cisco returned $2.4 billion to shareholders through dividends and buybacks. The company repurchased 15 million shares in the quarter at an average price of $53.30 per share for a total price of $791 million. That's a great use of capital with shares closing this afternoon at $55.15. Management currently has $7.9 billion remaining on its current authorization.
And, by the way, this quarter's operating cash flow of 4.5 billion was a record. This allows management to continue to invest in key growth areas and technology shifts like hybrid cloud, hybrid work, 5G, Wifi 6, Edge, security, and cloud-native architectures. It also keeps management active on the deal making front. During the fiscal fourth quarter, Cisco closed five acquisitions.
Turning to guidance, for the very first time management offered an annual outlook in addition to its regular quarterly outlook. Think about that. A full-year outlook for the very first time is a sign of confidence and visibility into the next four quarters, even with the uncertainty of the Delta Variant. This all speaks to the years of execution in the company's transformation that focuses on subscription-based, recurring, deferred revenue streams. The reward of this predictability should be a higher price to earnings multiple.
Cisco expects fiscal year 2022 revenue to increase 5% to 7% YoY, which implies total revenue for the year of about $52.788 billion. That's higher than the consensus estimates of $51.961 billion. On earnings, management expects non-gaap earnings per share of $3.38 to $3.45, which at a midpoint of $3.415 is slightly higher than $3.40 estimates. The low end of this EPS guidance reflects supply chain impacts that continue through most of the second half of the year. We think this is a pretty solid result given the fact that management typically guides very conservatively with their forward outlook.
For the first quarter, management expects revenues to grow 7.5% to 9.5% YoY, which implies total revenue of about $12.94 billion and is higher than estimates of $12.828 billion. Adjusted gross margins are expected to be 63.5% to 64.5%, and that's slightly below last year's quarterly result of 65.8%. That might be why management's adjusted earnings per share guidance of $0.79 to $0.81 is only inline with estimates of $0.81, despite the stronger revenues. But once again, it's good to remember that management typically guides conservatively
Overall, we thought there was a lot to like about the quarter. Management successfully navigated through its supply chain challenges to deliver an earnings beat, software revenues continued to grow at a very solid pace, and the strength in orders suggests even better times are ahead for the company. And at roughly 16-times the midpoint of the fiscal year 2022 earnings outlook with a 2.68% dividend yield and a growing software business, we continue to believe this is one cheap stock.
Shares are currently trading about 1.5% lower in after hours, despite the better-than-expected quarter and a very good full-year outlook. We think this slight pullback is a result of the stock trading right around its 52-week highs in a market where many stocks have pulled back 10-20% from their recent peaks. The pullback Wednesday night looks wrong to us, much like how the post-earnings selloff in May was the wrong reaction, too -- and we would be buyers on weakness Thursday. We'll update our price target higher in the coming days.