Disruption defined much of 2021 for Cisco and its customers. But that didn’t put a dent in demand for the vendor’s offerings. According to Cisco CEO Chuck Robbins:
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 a very strong adoption of our Acacia optical solutions.
However, any excitement around growth and innovation across Cisco’s offerings has been tempered by persistent supply chain issues. The entire tech industry, Cisco included, feels the strain of semiconductor shortages. Network World wrote that Robbins expects “the supply challenges and cost impacts to continue through at least the first half of the company’s fiscal year and potentially into the second half.”
For Cisco customers, these challenges have resulted in multiple price increases that will impact every customer in 2022.
A Quick Note on the Semiconductor Shortage and Other Supply Chain Issues
Before we dig into the latest Cisco price increase, let’s take a look behind the scenes. The COVID-19 virus has impacted the supply chain, resulting in serious ramifications for the tech industry. Increased demand for hardware components partially stemmed from the massive shift to a remote workforce at the start of the pandemic. At the same time, processor plants shut down, labor shortages became an ongoing challenge, and shipping delays became widespread. These challenges continue today.
Arista stated that semiconductor lead times have extended to 40-60 weeks, about double that of pre-pandemic norms. Arista’s COO and senior vice president said:
Things are very constrained, but I think what’s happened is the world supply chain never planned for this big mismatch in supply and demand. And as a result, when you run into a crunch, people try to book ahead and plan to rebuild buffers and so on. But this is not an industry where you can react in one quarter. This will last a long time.
The January 2022 Cisco Price Increase
In early January 2022, Cisco announced a material across-the-board base price increase, effective January 30, 2022. In partner communications, Cisco claimed the hike will be an “average” of 10% across its entire portfolio. Certain products will fall above or below this average, while others – including SaaS – will be exempt.
However, specific price changes published on Cisco’s website tell a different story. They show the increase is significantly higher for most offerings, falling into the 15 to 25% range. While Cisco’s standard 30-day price protection applies to all quotes approved prior to the effective date, the timing of the announcement gave enterprises little runway to adjust their purchasing strategy.
The most recent price increase is not the only price change Cisco users have experienced. Recently, the vendor announced a number of price changes in 2021. For example, in April 2021, Cisco implemented a price increase on technical services for certain end-of-sale products and networking software tiered subscription licenses. In July 2021, price changes occurred for select end-of-sale products, perpetual unified communications licenses, catalyst switches, and security third-party Radware OEM licenses. In November 2021,Cisco increased pricing for select end-of-sale products, ISE passive identity connectors, and catalyst 3850-24U-L-switch-24 ports.
How to Offset the Impact of Cisco Price Increases
The January 2022 Cisco price increase is broad enough to impact most – if not all – enterprise users. However, there are some things customers can do to offset the impact of this latest increase as well as future Cisco price increases.
1. Perform Price Benchmark Analysis on All Subsequent Purchases and Renewals
Performing price benchmark analysis on all Cisco purchases is critical. It will ensure pricing is within fair market value range, uncover negotiation leverage and identify savings opportunities that can offset higher base pricing. For NPI customers, this tactic typically yields savings of 10 to 20% (or more), which can significantly mitigate or fully negate price increases.
2. Consider the Pros and Cons of the Cisco Enterprise Agreement
If you have a Cisco Enterprise Agreement, now is a good time to evaluate if it still makes sense for your organization. There are certain benefits and disadvantages to the Cisco EA. For certain customers, major shifts in pricing may make the agreement no longer advantageous.
3. Optimize Your Enterprise Agreement
If a Cisco EA makes sense for your organization, optimize your agreement. As is the case with most EAs, overbuying is a risk. Cisco bundles its offerings with little insight into line-item pricing, making it easy for enterprise customers to purchase more than they need. Over-purchasing results in accrued shelfware, ultimately driving up support costs. As prices increase, overspending must be eliminated.
Customers should adhere to three best practices when signing a net-new EA or renewing an agreement:
- Demand line-item pricing transparency
- Benchmark pricing against similarly scoped peer purchases
- Negotiate smaller bundles that best fit their requirements
NPI Can Reduce Your Cisco Spend
Considering Cisco’s latest price increase, enterprise customers have three options. They can accept Cisco’s price increase without a fight, which is not advisable. Or they can switch vendors – a tactic that’s virtually impossible for most customers given Cisco’s expansive footprint within most organizations.
Alternately, they can take steps to mitigate the price increase and identify savings opportunities across their Cisco estate. NPI is helping customers make this happen through our proven IT price benchmark analysis, transaction-specific negotiation guidance, EA optimization services. We are not a reseller and our guidance is 100% objective. If you’d like to explore how you can reduce the cost of your Cisco purchases/renewals, reach out to us.