Cisco
Systems just threw a monkey wrench into the recent rebound in technology stocks. While the networking firm reported slightly better-than-expected results for its latest quarter, the company’s outlook was well short of estimates.
The stock was down as much as 10% in premarket trading Thursday following the report, dragging down shares of other networking stocks, such as
Arista Networks
(ticker: ANET),
Juniper Networks
(JNPR), and
Ciena
(CIEN).
“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,” the company said in announcing October quarter results. “Cisco estimates there are one to two quarters of shipped product orders still waiting to be implemented by its customers.”
On a call with analysts, CEO Chuck Robbins said a previous bottleneck in components has shifted downstream to its customers. He said orders and backlog are now at roughly normal levels.
The disappointing guidance will raise fresh questions about the health of IT spending in the final months of the year and into 2024.
For its fiscal first quarter ended Oct. 28, Cisco (CSCO) reported revenue of $14.7 billion, up 8% from the year-ago quarter. That’s at the high end of the company’s forecast range of $14.5 billion to $14.7 billion, and slightly above Wall Street consensus of $14.6 billion.
Quarterly profit on an adjusted basis was $1.11 a share, above the company’s guidance range of $1.02 to $1.04 a share, and ahead of Wall Street at $1.03 a share. Under generally accepted accounting principles, Cisco earned 89 cents a share, up 37% from a year earlier.
Product orders were down 20% in the quarter from a year earlier, including a 26% decline in enterprise orders and a 32% drop in service provider and cloud revenue. Public sector orders were up 2%.
Orders were down 13% in Europe, the Middle East, and Africa; 19% in the Americas; and 38% in Asia. Robbins said on the call that the company has “line of sight” to over $1 billion in orders related to AI applications.
Cisco CFO Scott Herren said in an interview with Barron’s that the company didn’t see any real change in macroeconomic conditions in the quarter, although order approval cycles remain elongated.
“This was much more about the enormous amount of product that we’ve shipped out the door,” he said.
Herren noted that one reseller recently told him that they hired 200 more people in recent weeks to work through the implementation backlog at customer sites.
For the January quarter, Cisco is projecting revenue of $12.6 billion to $12.8 billion. The midpoint of that range implies a decline of 6.6% from a year ago, and it’s well short of the Wall Street consensus—as tracked by FactSet—of $14.2 billion.
The company sees profit for the January quarter of 82 to 84 cents on an adjusted basis, below consensus of 99 cents, with GAAP profits of 59 cents to 64 cents.
For the July 2024 fiscal year, Cisco now sees revenue ranging from $53.8 billion to $55 billion, down from a previous forecast of $57 billion to $58 billion. The new range implies a 2024 revenue decline of nearly 5%. The company now sees adjusted profit for the 2024 year of $3.87 to $3.93 a share, down from a previous projection of $4.01 to $4.08 a share.
Cisco bought back $1.25 billion in stock in the quarter, right in line with its commitment to repurchase stock at that level. Herren said the pending acquisition of
Splunk
won’t impact the buyback pace.
Cisco faces a complex operating environment. Equipment providers to the telecommunications sector have been seeing soft demand, resulting in disappointing results from companies like Ericsson, CommScope and others. What the Street had not expected was the weakness in orders from enterprise customers.
Write to Eric J. Savitz at [email protected]
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