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May 16, 2018

Cisco Q4 sales, profit see boost from corporate network spending

Cisco sinks as Wall Street questions strategy

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Cisco Systems Inc. (CSCO.O) gave an upbeat forecast for fiscal fourth-quarter sales, a signal of healthy demand for equipment and software that runs the internet and corporate networks.

Revenue in the current period will rise 4 per cent to 6 per cent from a year earlier, the San Jose, California-based company said Wednesday in a statement. That indicates sales of US$12.6 billion to US$12.9 billion, compared with an average analyst prediction of US$12.7 billion. Adjusted profit in the quarter ending in July will be 68 to 70 cents a share, while analysts projected 69 cents. Third-quarter sales and profit also topped estimates.

Chief Executive Officer Chuck Robbins has been working to make Cisco less dependent on the market for expensive equipment by making the company’s hardware more flexible and selling more networking services and software. Yet Cisco still relies on hardware for more than half of its revenue, and it’s posted sales growth in only two of the past nine quarters. For now, increased spending on networking gear in general may be buoying Cisco’s main business, buying more time for its increasing backlog of deferred software and services revenue to translate into more sustained sales growth.



Still, the shares dropped about 3 per cent in extended trading following the announcement, after surging 18 per cent so far this year. Some investors who contributed to the stock’s run-up this year had expected the company to predict growth in excess of analysts’ estimates, according to analyst Mike Genovese of MKM Partners. The stock had fallen less than 1 per cent at Wednesday’s close in regular New York trading.

In the third quarter, which ended April 28, Cisco said net income rose to US$2.69 billion, or 56 cents a share. Sales climbed 4.4 per cent to US$12.5 billion, the second straight period of growth. Excluding certain items, profit was 66 cents a share. That compares with average analyst projections for profit of 65 cents a share on revenue of US$12.4 billion, according to data compiled by Bloomberg.