Is
Cisco
going to show any topline growth this year? That question will loom over the networking giant when it reports October quarter results after the close of trading on Wednesday.
Cisco (ticker: CSCO) 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. For now, demand seems stronger from the enterprise sector, as demonstrated by strong results at Arista Networks, which is getting a boost from AI-related cloud computing work. But there are still worries about the outlook for IT spending in 2024, with weakness showing up in some areas, as evidenced by the most recent results from the IT consulting giant Accenture.
Cisco’s results in recent quarters have continued to feel the aftereffects of serious component shortages during the pandemic, which drove up orders and backlog to historically high levels. As the components issue has eased, Cisco has been working down its backlog, driving up shipments and revenue. But that factor has been offset by lower orders, as customers digest the hardware surge.
For the company’s fiscal fourth quarter ended July 31, Cisco posted 16% revenue growth, bringing full year growth to 10.6%, the highest level since 2010. But orders were down about 14% from the year-earlier quarter. Cisco said it finished the year with twice its normal backlog, but added that it would work most of that down in the October quarter.
Cisco projected October quarter revenue of $14.5 billion to $14.7 billion, up 7% at the midpoint of the range, with non-GAAP profits of $1.02 to $1.04 a share. Street consensus as tracked by FactSet calls for revenue of $14.6 billion, profits of $1.03 a share and billings of $14 billion, up 4% from a year ago.
Cisco’s guidance calls for July 2024 fiscal year revenue of between $57 billion and $58.2 billion, up only 1% at the middle of the range, with profits on an adjusted basis of between $4.01 and $4.08 a share. Full-year consensus estimates call for revenue of $57.8 billion, and profits of $4.05 a share. At the bottom of Cisco’s forecast range, the topline would be flat. The company’s last down year was in 2020, with offices largely shuttered and components in scarce supply.
Wall Street analysts seem generally unconcerned about the prospects for the October and January quarters, but as the earnings forecasts suggest, they see risk of slowing growth in the second half of the company’s fiscal year.
Evercore ISI analyst Amit Daryanani writes in a research note previewing the quarter that “the debate here will be risk to second half estimates” given weaker enterprise demand, offset by a potential lift from AI-related orders”. He thinks investors will remain focused on order growth rates, and adds that a return to positive year-over-year growth could act as a catalyst for the stock, although he’s not expecting that to happen. Daryanani keeps his Outperform rating and $63 target price.
UBS analyst David Vogt writes that his survey data of IT buyers suggests that enterprise demand picked up slightly in the latest quarter, but he adds that “the forward outlook continues to trend lower as orders likely softened during the quarter.” Vogt adds that there are signs of “macro pressures, particularly in Europe.” He also sees risk in the year’s second half; Vogt keeps his Neutral rating and $55 target price on the shares.
Cisco shares are up 10% for the year, but down fractionally since the company’s last earnings report.
Write to Eric J. Savitz at [email protected]
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