Cisco
Systems dismayed Wall Street when it reported its financial results in November, warning investors that a pileup of inventory held by customers would result in slower shipments of networking equipment for at least a quarter or two. That means it is no surprise that expectations are guarded for its January quarter results.
Management has forecast revenue of between $12.6 billion and $12.8 billion, a range whose midpoint is 6.6% lower than the year-earlier result. Its guidance calls for adjusted profits of 82 to 84 cents a share, while the consensus forecast on the Street is for revenue of $12.7 billion and adjusted profits of 84 cents a share.
The numbers are due after the close of trading on Wednesday.
In announcing results for the October quarter, Cisco blamed a slowdown in new orders on a post-pandemic ripple effect that came as its supply chain loosened, allowing shipment of a flood of orders received over the prior couple of years.
“Customers are currently focused on installing and implementing products in their environments following exceptionally strong product delivery over the past three quarters,” Cisco said at the time. “Cisco estimates there are one to two quarters of shipped product orders still waiting to be implemented by its customers.”
CFO Scott Herren said in an interview with Barron’s last quarter that the company didn’t see any real change in macroeconomic conditions in the quarter, although order approvals were slow. “This was much more about the enormous amount of product that we’ve shipped out the door,” he said. Cisco’s product orders were down 20% in the October quarter.
For the April quarter, Street estimates call for revenue of $13.1 billion, down 10.2% from a year ago, with an adjusted profit of 92 cents a share.
Cisco’s guidance for the July 2024 fiscal year calls for revenue of between $53.8 billion and $55 billion, down nearly 5%, with adjusted profits of $3.87 to $3.93 a share. The consensus forecasts among analysts tracked by
FactSet
call for $54.4 billion in revenue and adjusted profits of $3.86 a share.
Analysts are cautious on Cisco heading into the quarter. The stock closed at $49.64 on Tuesday, down 1.7% so far this year. It has gained 4.1% over the past 12 months.
“We expect networking to remain pressured and believe the weakness will be visible on Cisco’s results,” BofA Global Research analyst Tal Liani wrote in a note previewing the quarter. Liani maintains a Neutral rating and $50 target price on Cisco shares. With product orders falling and the backlog “largely depleted,” he sees product revenue falling 9%, 13% and 12%, in the next three quarters, respectively.
Evercore ISI analyst Amit Daryanani kept an Outperform rating and $55 target price on Cisco shares, but wrote that he is cautious on the stock heading into the earnings announcement, “given the slowdown in the enterprise networking market that was flagged by a number of peers and channel partners.” He thinks consensus estimates will have to fall to remove the risk of a disappointment in the second half of Cisco’s fiscal year.
A potential positive offset to that could come if Cisco remains bullish about the opportunity in AI-related data centers and “puts some firmer numbers around [how] this translates into revenue” for fiscal 2025, he said.
One other factor could be cost-cutting. Reuters last week reported that the company plans to eliminate “thousands of jobs” to refocus on high-growth areas. Cisco declined to comment on the report.
Write to Eric J. Savitz at [email protected]
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