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Msg  525 of 529  at  8/12/2020 6:57:37 PM  by


Cisco Stock Slides After the Company Forecasts a Disappointing October Quarter


Cisco Stock Slides After the Company Forecasts a Disappointing October Quarter

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The Barron's Daily

A morning briefing on what you need to know in the day ahead, including exclusive commentary from Barron's and MarketWatch writers.

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Shares of Cisco Systems fell in after hours trading Wednesday after the company issued a weaker-than-expected outlook for the company’s current quarter ending in October.

For the fiscal fourth quarter ended July 25, the networking giant posted revenue of $12.2 billion, down 9% from a year ago. That was within the company’s guidance range of down 8.5% to 11.5%, and a little above the Wall Street analyst consensus of $12.1 billion. Adjusted, or non-GAAP, profits were 80 cents a share, down 4% from a year ago, but above the Street’s forecast of 74 cents and ahead of the company’s guidance range of 72 cents to 74 cents.

Cisco (ticker: CSCO) said product revenue was down 13% in the quarter, while service revenue was flat. Revenue was down 12% in the Americas, 6% in EMEA (Europe, Middle East and Africa), and 7% in APJC (Asia-Pacific, Japan and China). Security revenue was up 10%, but Infrastructure Platforms revenue was down 16% and Applications revenue was down 9%. The company did not repurchase any stock in the quarter.

For the current October quarter, Cisco sees revenue down 9% to 11% from a year ago, which implies a range of $11.7 billion to $12 billion, below the current Street consensus forecast of $12.25 billion. Cisco sees non-GAAP profits for the quarter of 69 to 71 cents a share, falling short of consensus at 76 cents. 

The company also announced that CFO Kelly Kramer plans to retire but will stay on until a successor is named.

“By the end of fiscal 2020, we achieved our goal of more than half of our revenue coming from software and services, and this strategy continues to resonate with customers as they digitize their organizations,” CEO Chuck Robbins said in a statement. “As we focus on the future, we are rebalancing our R&D investments to focus on new areas so we can continue to offer customers the best, most relevant technology in simpler, more easily consumable ways.”

Robbins indicated on Cisco’s post-earnings conference call that the company plans to cut costs by about $1 billion over the next few quarters.

In an interview with Barron’s this afternoon, Kramer confirmed that the cost-cutting will include some job reductions, but that she hopes a substantial portion of that will be in the form of employees accepting voluntary early retirement.

Asked about the disappointing guidance for the quarter, she notes that the old Street consensus had anticipated a slight improvement in conditions in the current quarter from the July quarter, but that “the environment hasn’t really gotten better.”

Kramer adds that very large enterprises continue to invest in their infrastructure, but the company is seeing slower activity from small- and medium-sized customers.

On the topic of the company’s plan to spend more aggressively on new business areas, Kramer said that could include a substantial commitment to acquisitions. She notes that the company expects to continue to spend about $3 billion a year on buying other businesses, in addition to spending about $6 billion a year on R&D.

Kramer confirmed that the company decided not to buy any stock back in the latest quarter, but she says Cisco expects to be buying back stock again in the current quarter. She notes that the company historically has spent about $1 billion a quarter repurchasing stock.

Asked about the company’s WebEx video conferencing business, Kramer said it grew double-digits in the quarter, adding that WebEx is seeing better-than-expected conversion of free trials into paying customers. “It’s progressing very well,” she said.

Cisco is down 6.5% in late trading, to $45.


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