500-230 guide - Cisco Service Provider Routing Field Engineer Updated: 2023

Optus has submitted to the Senate Standing Committee on Environment and Communications a full account on what it thinks caused the massive outage last 8 November that crippled its subscribers: 90 Cisco provider edge routers automatically self-isolated to protect themselves from an overload of IP routing information.

Previously, the telco attributed the outage to a regular upgrade going wrong that fouled up its network.

It claimed that an "international peering network" had fed it bad data.

Last Monday, the company's spokesperson said: "At around 4:05am Wednesday morning, the Optus network received changes to routing information from an international peering network following a routine software upgrade."

"These routing information changes propagated through multiple layers in our network and exceeded preset safety levels on key routers which could not handle these. This resulted in those routers disconnecting from the Optus IP Core network to protect themselves."

According to news reports, the unnamed "international peering network" that contributed to the outage is run by its Singaporean parent company Singtel.

But Singel disputed the claims, pinpointing that the outage was caused by Optus' safety mechanisms, and not a routine software upgrade.

Optus confirmed Singtel's account in a submission filed late on Thursday, ahead of a senate appearance today.

The Optus report reads: "It is now understood that the outage occurred due to approximately 90 PE routers automatically self-isolating in order to protect themselves from an overload of IP routing information."

"These self-protection limits are default settings provided by the relevant global equipment vendor (Cisco)."

Optus said the unexpected overload of IP routing information occured after a "software upgrade at one of the Singtel internet exchange" in North America.

During the upgrade, Optus said its network received changes in routing information from an alternate Singtel peering router.

"These routing changes were propagated through multiple layers of our IP Core network."

Optus suggests the upgrade led to the bad route information being propagated. However, it did not explain further, but now said this "was not the cause of the incident in Australia."

One hundred fifty engineers and technicians are now working to restore the system, supported by another 250 staff and five vendors, according to the document.

For the first six hours of the outage, engineers tried to come up with explanations for the large-scale outage.

Theories include whether works overnight by Optus itself were the cause but it found no resolution.

It also explored the possibility of a DDoS attack, a network authentication issue, or problems with other vendors such as its content delivery network provider.

But its IPv6 line of enquiry became its "leading hypothesis for network restoration."

“Through this process, we identified that resetting routing connectivity addressed the loss of network services. This occurred at 10:21am."

Optus' engineers then performed the following steps:

1. Resetting and clearing routing connectivity on network elements which had disconnected themselves from the network.

2. Physically rebooting and reconnecting some network elements to restore connectivity.

3. Carefully and methodically re-introducing traffic onto the mobile data and voice core to avoid a signalling surge on the network.

Optus continued to investigate more on the matter, performing unspecified "resiliency" works on the network between 8 November to 13 November.

The submission also detailed its customer communications defence on the outage day, but will likely to be challenged in a senate inquiry.

Optus has offered a 200GB data to affected consumers, but some say this is not enough.

The data is not enough to compensate the affected operations of businesses which lost money during the outage. However, the telco argued that if there is an outage, businesses must be responsible to own a backup connectivity in the event service is down.

In its submission, Optus argued making a telco pay financial compensation for losses is not a precedent that should be set.

"However, there is no precedent for compensation being paid by telecommunications providers to all business customers who suffer a loss of business as a result of an outage of the kind that occurred on 8 November, either here or overseas."

It argued that there no precedent for essential services such as electricity providers to pay compensation for businesses losses when there is an outage.

Electricity networks do not compensate business customers for "consequential losses" such as wages. It cited Ausgrid, an NSW-based electricity provider, which stated: "There is no compensation granted for consequential loss such as wages, productivity or trade.”

Optus downplayed the outage, saying "it isn't the first to suffer a sizeable outage in Australia" nor would the 8 November outage be the last incident of its type.

"While every communications network provider wants to avoid such outcomes, it is an unfortunate reality in our reliant digital age that no communications network can completely protect against, nor prevent, these types of occurrences from ever happening – despite the investments made or resiliency efforts undertaken."

SAN JOSE, Calif., Nov. 15, 2023 /PRNewswire/ -- 

News Summary:

• Strongest first quarter results in Cisco's history in terms of revenue and profitability with $14.7 billion in revenue, up 8% year over year; GAAP EPS $0.89, up 37% year over year, and Non-GAAP EPS $1.11, up 29% year over year
• Progress on business model transformation in Q1 FY 2024:
  • Total software revenue up 13% year over year and software subscription revenue up 13% year over year
  • Total annualized recurring revenue (ARR) at $24.5 billion, up 5% year over year and product ARR up 10% year over year
  • Remaining performance obligations (RPO) at $34.8 billion, up 12% year over year and product RPO up 14% year over year
• Strong Q1 revenue across Cisco product portfolio, driven by customers' investments in Generative AI, Cloud, Security, and Full Stack Observability
• Q1 FY 2024 Results:
  • Revenue: $14.7 billion
    • Increase of 8% year over year
  • Earnings per Share: GAAP: $0.89; Non-GAAP: $1.11
    • GAAP EPS increased 37% year over year
    • Non-GAAP EPS increased 29% year over year
• Q2 FY 2024 Guidance:
  • Revenue: $12.6 billion to $12.8 billion
  • Earnings per Share: GAAP: $0.59 to $0.64; Non-GAAP: $0.82 to $0.84
• FY 2024 Guidance:
  • Revenue: $53.8 billion to $55.0 billion
  • Earnings per Share: GAAP: $2.97 to $3.08; Non-GAAP: $3.87 to $3.93

Cisco today reported first quarter results for the period ended October 28, 2023. Cisco reported first quarter revenue of $14.7 billion, net income on a generally accepted accounting principles (GAAP) basis of $3.6 billion or $0.89 per share, and non-GAAP net income of $4.5 billion or $1.11 per share.

"We had a solid start to fiscal 2024 with the strongest Q1 results in our history on both revenue and profitability," said Chuck Robbins, chair and CEO of Cisco. "We are confident in the foundational strength of our business and future growth opportunities fueled by AI, Security, Cloud, and Observability."

"In Q1, we delivered revenue and EPS at the high end or above our guidance range, generating strong operating leverage," said Scott Herren, CFO of Cisco. "We also saw double-digit year-over-year growth in software revenue, product ARR and total RPO. After customers implement large amounts of recently shipped product, we expect to see product order growth rates accelerate in the second half of the year. We are committed to delivering operating leverage and increasing capital returns to our shareholders."

 

Reconciliations between net income, EPS, and other measures on a GAAP and non-GAAP basis are provided in the tables located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Cisco Declares Quarterly Dividend

Cisco has declared a quarterly dividend of $0.39 per common share to be paid on January 24, 2024, to all stockholders of record as of the close of business on January 4, 2024. Future dividends will be subject to Board approval.

Financial Summary

All comparative percentages are on a year-over-year basis unless otherwise noted.

Q1 FY 2024 Highlights

Revenue -- Total revenue was $14.7 billion, up 8%, with product revenue up 9% and service revenue up 4%. Revenue by geographic segment was: Americas up 14%, EMEA flat, and APJC was down 3%. Product revenue performance reflected growth in Networking up 10%, Security up 4%, Observability up 21% and Collaboration up 3%.

Gross Margin -- On a GAAP basis, total gross margin, product gross margin, and service gross margin were 65.2%, 64.5%, and 67.3%, respectively, as compared with 61.2%, 59.2%, and 67.3%, respectively, in the first quarter of fiscal 2023.

On a non-GAAP basis, total gross margin, product gross margin, and service gross margin were 67.1%, 66.5%, and 69.0%, respectively, as compared with 63.0%, 61.0%, and 68.8%, respectively, in the first quarter of fiscal 2023.

Total gross margins by geographic segment were: 66.2% for the Americas, 69.5% for EMEA and 67.0% for APJC.

Operating Expenses -- On a GAAP basis, operating expenses were $5.3 billion, up 10%, and were 36.0% of revenue. Non-GAAP operating expenses were $4.5 billion, up 5%, and were 30.5% of revenue.

Operating Income -- GAAP operating income was $4.3 billion, up 21%, with GAAP operating margin of 29.2%. Non-GAAP operating income was $5.4 billion, up 24%, with non-GAAP operating margin at 36.6%.

Provision for Income Taxes -- The GAAP tax provision rate was 18.1%. The non-GAAP tax provision rate was 19.0%.

Net Income and EPS -- On a GAAP basis, net income was $3.6 billion, an increase of 36%, and EPS was $0.89, an increase of 37%. On a non-GAAP basis, net income was $4.5 billion, an increase of 28%, and EPS was $1.11, an increase of 29%.

Cash Flow from Operating Activities -- $2.4 billion for the first quarter of fiscal 2024, a decrease of 40% compared with $4.0 billion for the first quarter of fiscal 2023, primarily due to the timing of tax payments.

Balance Sheet and Other Financial Highlights

Cash and Cash Equivalents and Investments -- $23.5 billion at the end of the first quarter of fiscal 2024, compared with $26.1 billion at the end of fiscal 2023.

Remaining Performance Obligations (RPO) -- $34.8 billion, up 12% in total, with 51% of this amount to be recognized as revenue over the next 12 months. Product RPO were up 14% and service RPO were up 11%.

Deferred Revenue -- $25.7 billion, up 11% in total, with deferred product revenue up 12%. Deferred service revenue was up 11%.

Capital Allocation -- In the first quarter of fiscal 2024, we returned $2.8 billion to stockholders through share buybacks and dividends. We declared and paid a cash dividend of $0.39 per common share, or $1.6 billion, and repurchased approximately 23 million shares of common stock under our stock repurchase program at an average price of $54.53 per share for an aggregate purchase price of $1.3 billion. The remaining authorized amount for stock repurchases under the program is $9.7 billion with no termination date.

Acquisitions

In the first quarter of fiscal 2024, our closed acquisitions include:

• Accedian, a privately held network performance monitoring company
• Working Group Two, a privately held company that developed a cloud native mobile services platform
• Oort, Inc., a privately held company focused on identity threat detection and response technology
• SamKnows, a privately held broadband network monitoring company
• Code BGP, Inc., a privately held border gateway protocol monitoring company

Cisco's Intent to Acquire Splunk

On September 21, 2023, we announced our intent to acquire Splunk Inc., a public cybersecurity and observability company. The acquisition is expected to close by the end of the third quarter of calendar year 2024, subject to regulatory approval and other customary closing conditions including approval by Splunk shareholders.

Guidance

Cisco saw a slowdown of new product orders in the first quarter of fiscal 2024 and believes the primary reason is that customers are currently focused on installing and implementing products in their environments following exceptionally strong product delivery over the past three quarters. Cisco estimates there are one to two quarters of shipped product orders still waiting to be implemented by its customers.

Cisco expects to achieve the following results for the second quarter of fiscal 2024:

Cisco estimates that GAAP EPS will be $0.59 to $0.64 for the second quarter of fiscal 2024.

Cisco expects to achieve the following results for fiscal 2024:

Cisco estimates that GAAP EPS will be $2.97 to $3.08 for fiscal 2024.

Our Q2 FY 2024 guidance assumes an effective tax provision rate of 17% for GAAP and 19% for non-GAAP results. Our FY 2024 guidance assumes an effective tax provision rate of 18% for GAAP and 19% for non-GAAP results.

A reconciliation between the Guidance on a GAAP and non-GAAP basis is provided in the tables entitled "GAAP to non-GAAP Guidance" located in the section entitled "Reconciliations of GAAP to non-GAAP Measures."

Editor's Notes:

• Q1 fiscal year 2024 conference call to discuss Cisco's results along with its guidance will be held on Wednesday, November 15, 2023 at 1:30 p.m. Pacific Time. Conference call number is 1-888-848-6507 (United States) or 1-212-519-0847 (international).
• Conference call replay will be available from 4:00 p.m. Pacific Time, November 15, 2023 to 4:00 p.m. Pacific Time, November 22, 2023 at 1-800-834-5839 (United States) or 1-203-369-3351 (international). The replay will also be available via webcast on the Cisco Investor Relations website at https://investor.cisco.com.
• Additional information regarding Cisco's financials, as well as a webcast of the conference call with visuals designed to guide participants through the call, will be available at 1:30 p.m. Pacific Time, November 15, 2023. Text of the conference call's prepared remarks will be available within 24 hours of completion of the call. The webcast will include both the prepared remarks and the question-and-answer session. This information, along with the GAAP to non-GAAP reconciliation information, will be available on the Cisco Investor Relations website at https://investor.cisco.com.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward Looking Statements, Non-GAAP Information and Additional Information
This release 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 our confidence in the strength of our business, future growth opportunities in AI, Security, Cloud, and Observability, product order growth rates, and our commitment to delivering operating leverage and increasing capital returns to our shareholders) and the future financial performance of Cisco (including the guidance for Q2 FY 2024 and full year FY 2024) 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: business and economic conditions and growth trends in the networking industry, our customer markets and various geographic regions; global economic conditions and uncertainties in the geopolitical environment; our development and use of artificial intelligence; overall information technology spending; the growth and evolution of the Internet and levels of capital spending on Internet-based systems; variations in customer demand for products and services, including sales to the service provider market and other customer markets; the return on our investments in certain priorities, key growth areas, and in certain geographical locations, as well as maintaining leadership in Networking and services; the timing of orders and manufacturing and customer lead times; supply constraints; changes in customer order patterns or customer mix; insufficient, excess or obsolete inventory; variability of component costs; variations in sales channels, product costs or mix of products sold; our ability to successfully acquire businesses and technologies and to successfully integrate and operate these acquired businesses and technologies; our ability to achieve expected benefits of our partnerships; increased competition in our product and service markets, including the data center market; dependence on the introduction and market acceptance of new product offerings and standards; rapid technological and market change; manufacturing and sourcing risks; product defects and returns; litigation involving patents, other intellectual property, antitrust, stockholder and other matters, and governmental investigations; our ability to achieve the benefits of restructurings and possible changes in the size and timing of related charges; cyber attacks, data breaches or other incidents; vulnerabilities and critical security defects; our ability to protect personal data; evolving regulatory uncertainty; terrorism; natural catastrophic events (including as a result of global climate change); any pandemic or epidemic; our ability to achieve the benefits anticipated from our investments in sales, engineering, service, marketing and manufacturing activities; our ability to recruit and retain key personnel; our ability to manage financial risk, and to manage expenses during economic downturns; risks related to the global nature of our operations, including our operations in emerging markets; currency fluctuations and other international factors; changes in provision for income taxes, including changes in tax laws and regulations or adverse outcomes resulting from examinations of our income tax returns; potential volatility in operating results; and other factors listed in Cisco's most exact report on Form 10-K filed on September 7, 2023. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in Cisco's most exact report on Form 10-K as it may be amended from time to time. Cisco's results of operations for the three months ended October 28, 2023 are not necessarily indicative of Cisco's operating results for any future periods. Any projections in this release 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 release.

This release includes non-GAAP net income, non-GAAP gross margins, non-GAAP operating expenses, non-GAAP operating income and margin, non-GAAP effective tax rates, non-GAAP interest and other income (loss), net, and non-GAAP net income per share data for the periods presented. It also includes future estimated ranges for gross margin, operating margin, tax provision rate and EPS on a non-GAAP basis.

These non-GAAP measures are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Cisco believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Cisco's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Cisco's results of operations in conjunction with the corresponding GAAP measures.

Cisco believes that the presentation of non-GAAP measures when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to its financial condition and its historical and projected results of operations.

For its internal budgeting process, Cisco's management uses financial statements that do not include, when applicable, share-based compensation expense, amortization of acquisition-related intangible assets, acquisition-related/divestiture costs, significant asset impairments and restructurings, significant litigation settlements and other contingencies, Russia-Ukraine war costs, gains and losses on investments, the income tax effects of the foregoing and significant tax matters. Cisco's management also uses the foregoing non-GAAP measures, in addition to the corresponding GAAP measures, in reviewing the financial results of Cisco. In prior periods, Cisco has excluded other items that it no longer excludes for purposes of its non-GAAP financial measures. From time to time in the future there may be other items that Cisco may exclude for purposes of its internal budgeting process and in reviewing its financial results. For additional information on the items excluded by Cisco from one or more of its non-GAAP financial measures, refer to the Form 8-K regarding this release furnished today to the Securities and Exchange Commission.

Annualized recurring revenue represents the annualized revenue run-rate of active subscriptions, term licenses, operating leases and maintenance contracts at the end of a reporting period, net of rebates to customers and partners as well as certain other revenue adjustments. Includes both revenue recognized ratably as well as upfront on an annualized basis.

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