Cisco Systems
posted better-than-expected financial results for its fiscal third quarter, and inched up its guidance for the July fiscal year. But a decline in orders sent shares sharply lower in late trading.
For the quarter ended April 29, the company reported revenue of $14.6 billion, up 14% from a year ago, with profits of $1 a share on an adjusted basis, and 78 cents under generally accepted accounting rules.
Cisco (ticker: CSCO) had projected revenue growth of 11% to 13%, non-GAAP earnings of 96 to 98 cents a share, and GAAP earnings of 74 to 79 cents.
For the fiscal fourth quarter, Cisco sees revenue up 14% to 16%, with non-GAAP profits of $1.05 to $1.07 a share, ahead of the Wall Street forecast for 14.1% growth and profits of $1.04 a share. Cisco now sees full-year revenue up 10% to 10.5%, with non-GAAP profits of $3.80 to $3.82 a share; previous guidance called for growth of 9% to 10.5% and profits of $3.73 to $3.78 a share.
The company said on its earnings call that orders were down 23%. Heading into the quarter, Wall Street analysts had been focused on company’s order progress.
In late trading, Cisco shares were down about 4.5%.
“We once again delivered a strong quarter in a dynamic environment,” CEO Chuck Robbins said in a statement. “In Q3, we delivered record revenue and double-digit growth in both software and subscription revenue. As key technologies like cloud, AI and security continue to scale, Cisco’s long-established leadership in networking, and the breadth of our portfolio position us well for the future.”
In a research note previewing the quarter, Evercore ISI analyst Amit Daryanani points out that Cisco shares are down about 4% since reporting January quarter results, “likely driven by investors focusing more on order trends than revenue growth.”
In the January quarter, Cisco reported that orders were down 22% from the year-ago period, after seeing 30%-plus growth for several consecutive quarters.
“There is a fair bit of investor concern around true demand levels for enterprise networking and whether we could see a downturn in 2024 as backlog declines,” the analyst writes.
Daryanani says the “bogey” for Cisco could be the 30% order decline that
Juniper Networks
(JNPR) posted in the most recent quarter.
Almost every analyst who follows Cisco has focused on the same issue when looking ahead to financial results for the fiscal third quarter ended in April.
J.P. Morgan analyst Samik Chatterjee made a similar point in his own earnings preview note, asserting that the Street is likely to ignore even a potential boost to the company’s July 2023 fiscal year guidance—and focus instead on orders. He says another quarter of orders dropping 22% or more “will be seen as definitive proof of a much weaker demand backdrop.”
UBS analyst David Vogt looked at the same subject in his preview note for the quarter. He points out that while the order growth “comp” is about 25 percentage points easier in the April quarter, “there is increased risk that the expected moderation of order declines from 22% last quarter does not materialize.” To Vogt’s point, Cisco’s product orders were up 33% in the January 2022 quarter, while moderating to 8% growth in the April 2022 period.
Write to Eric J. Savitz at [email protected]
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