Cisco jumps on better-than-expected revenue pace and tips: 6 takeaways

Unlike many tech companies that have reported in recent weeks, Cisco Systems (CSCO) posted profits facing a fairly low bar. And he cleared that bar comfortably.

On Thursday afternoon, Cisco reported revenue of $ 11.93 billion for the October quarter (fiscal first quarter) (down 9% annually) and non-GAAP EPS of 0.76 USD (down 10%), beating FactSet’s consensus estimate of $ 11.85 billion and $ 0.70.

The networking giant also reported that revenue for the January quarter remained stable at 2% per year and that non-GAAP EPS would be in the range of $ 0.74 to $ 0.76. This compares to consensus estimates of a revenue decline of 3.4% and EPS of $ 0.73, respectively.

Separately, Cisco announced that it has hired Autodesk’s CFO (ADSK) R. Scott Herren to be its CFO, effective December 18. The news comes three months after Cisco revealed CFO Kelly Kramer would retire once a successor is in place.

At the time of this article, Cisco’s stock is up 7.5% after-hours to $ 41.55. The shares had entered earnings down 19% on the year as markets digested the main revenue pressures facing various Cisco computer hardware companies.

Here are some takeaways from Cisco’s earnings report and appeal.

1. The demand trends suggested by Chuck Robbins are improving

“We are encouraged by the signs of improvement in our business as we continue to navigate the pandemic and other uncertainties,” the Cisco CEO said on the call.

Robbins also noted that demand from “business” customers (SMBs and midmarket) picked up after a difficult quarter in July, and that Cisco is now seeing more transactions from large companies in its pipeline. He added that Cisco’s sales to public sector customers are benefiting from various stimulus efforts around the world, as well as increased sales to education customers and US federal customers.

2. Product orders were still quite mixed

Cisco’s total product orders fell 5% per year, after falling 10% in the July quarter.

Business orders were a weak spot, their annual decline increasing to 15% from 7% in the July quarter. On the other hand, the decline in Cisco’s commercial product orders fell from 23% to 8%, and public sector orders fell from 1% to 5%. Orders from service providers fell 5% in the second consecutive quarter.

Cisco product orders for the October quarter. Source: Cisco.

Robbins received several questions during the corporate orders call. He insisted that he was not too concerned about them, while also mentioning that Cisco now has more transactions with large companies in its sales funnel and planning that the investments related to video conferencing will be made. when employees start returning to their offices will give a boost to business sales.

3. Hardware sales fell again

Cisco’s infrastructure platforms segment – among others, it covers sales of switches, routers, servers, Wi-Fi equipment and related software – reported revenue of $ 6.34 billion, in below a consensus of $ 6.45 billion. With both COVID and competitive pressures weighing down, the segment’s revenue declined 16% per year for the second consecutive quarter.

Kramer said Cisco has seen revenue decline in its switching, routing, data center (server / storage) and wireless product lines. The Catalyst 9000 line of campus switches and Wi-Fi equipment supporting the new Wi-Fi 6 standard were highlights.

4. Software and security weren’t perfect, but had positives

Cisco’s Applications segment revenue was $ 1.38 billion, down 8% per year and slightly below a consensus of $ 1.4 billion. However, Kramer said the drop was due to lower sales of unified communications and telepresence devices (IP phones, office video conferencing equipment, etc.).

While not Zoom (ZM), the Webex video conferencing business is said to have seen strong growth in revenue and usage, with monthly attendees nearly doubling since March to nearly $ 600 million. And with 78% of Cisco’s software revenue now coming from subscriptions (up from 71% a year ago), the company’s deferred product revenue has grown by 15%.

Security revenue rose 6% to $ 861 million, beating the consensus of $ 5 million. “Strong double-digit growth” was reported for Cisco’s cloud security offerings, which include its Duo authentication platform and cloud-based Umbrella Internet Gateway. At first glance, Cisco’s large on-premises security appliance company has had a more difficult time.

5. Some shares have been redeemed

Cisco bought back shares, but not at the high rates seen in recent years.

$ 800 million was spent to buy back about 20 million shares last quarter at an average price of $ 40.44. By comparison, $ 1.5 billion was used to return cash to shareholders through Cisco’s quarterly dividend.

6. Cisco seems to be making progress with Internet / Cloud Giants

“We’re making great strides with our customers across the web, with our fourth consecutive quarter of strong double-digit growth,” said Robbins. He went on to report that demand from Internet / cloud giants (i.e. hyperscalers) provided significant boost to product orders for Cisco’s service providers during the quarter.

Robbins’ comments come a year after Cisco announced a major shift in strategy for its efforts to conquer hyperscalers, saying it would sell switch / routing processors, optics, and its IOS XR 7 router operating system. on a stand-alone basis to third-party hardware manufacturers. hyperscalers work with it. With hyperscalers historically only accounting for a small portion of Cisco’s revenue and now accounting for a very large percentage of global service providers’ investments, Cisco has a strong incentive to do everything possible to increase its exposure to them.