Chuck Robbins, CEO of Cisco Technologies Inc., speaks during a panel discussion at the World Economic Forum (WEF) in Davos, Switzerland, on Tuesday, January 17, 2017. World leaders, influential executives, bankers and policymakers attend the 47th annual meeting of the World Economic Forum in Davos from January 17th to 20th.
Jason Alden | Bloomberg | Getty Images
Cisco stock fell 5% in extended trading Tuesday after the company posted second-quarter earnings that featured ongoing problems in its top product segment. However, the company’s results and quarterly projections exceeded analyst estimates.
This is how the company did it:
Overall, Cisco’s revenue declined slightly on a yearly basis for the quarter ended Jan. 23. Sales declined for the fifth quarter in a row. The weaker economy has dampened the company’s growth prospects, as has the decision by some customers to use cloud services to keep employees working efficiently and staying away during the coronavirus pandemic.
In the company’s leading product segment, Infrastructure Platforms, which includes sales of switches and routers for data center networks, Cisco had sales of $ 6.39 billion, down 3% year over year and above the consensus of 6, $ 23 billion below the analysts surveyed by FactSet.
“The corporate market remains weak, fueled by some extended sales cycles and a prolonged hiatus in spending from some customers caused by the pandemic,” Cisco CEO Chuck Robbins told analysts on a conference call. While switch revenue was flat, router and server revenue declined.
The application unit, including Webex video calling products, had sales of $ 1.35 billion, unchanged year over year, just below the FactSet consensus estimate of $ 1.40 billion. Webex had an average of 600 million users in the quarter, according to Robbins.
“I think you will actually see us next year – this portfolio will keep improving and I think we have a chance to buy back stocks,” said Robbins. Webex competes with Google, Microsoft and Zoom, among others.
Robbins pointed to the dynamism of web-scale customers running large data centers. About a quarter of Cisco’s sales to service providers for the quarter came from web-scale customers.
During the quarter, Cisco increased its bid to purchase network hardware company Acacia Communications from $ 2.6 billion to $ 4.5 billion. The company also announced that it plans to acquire cloud communications software maker IMImobile for $ 730 million and is rolling out third-party tool integration for Webex.
In relation to the forecasts, Cisco expects adjusted earnings per share of 80 to 82 cents with revenue growth of 3.5 to 5% in the third fiscal quarter. Analysts polled by Refinitiv had expected adjusted earnings per share of 81 cents and revenue of $ 12.35 billion, which would represent a 3% increase in revenue. The quarter includes an additional week.
Cisco has concerns about its supply chain, according to Scott Herren, the company’s chief financial officer, reflecting greater concerns about chip shortages.
“At this point we will get in touch with all important suppliers,” said Herren. “We’re taking advantage of the type of bulk buying we have and are continuing to expand this supply chain to make sure we can protect customer shipments. Hence, there is little headwind on these lines from the current supply chain.” The company’s sales and gross margin forecast reflects concerns about the supply chain, Herren said.
Excluding the after-hours move, Cisco stocks are up 9% year-to-date, while the S&P 500 index is up 4%.
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