More Questions Than Clues from Cisco Earnings

Cisco Hq2

By: R. Scott Raynovich

Today Cisco's stock rallied on quarterly earnings, which I have written about on Fierce Wireless.

In mid-day trading, Cisco shares rose +1.65 (3.93%) to 43.64 after the earnings report for its third fiscal quarter (ending April 25) beat analyst estimates. The question is: Did the earnings offer any clues about future business prospects? The answer is: Not really. Cisco executives said things had been going well until COVID-19 hit -- about midway through the quarter. Then revenues started to decline. So the process may have just started, and worse results might be yet to come in the next fiscal quarter.

Cisco revenue declined 12% year-on-year and executives said these revenue losses could accelerate. For the fiscal fourth quarter, Cisco executives said they expect revenue decreases to accelerate, providing guidance of a year-over-year sales decline of 8.5% to 11.5%.

Some more of the highlights:

  • The San Jose, Calif.-based company reported third-quarter (fiscal year) net income of $2.8 billion, or 65 cents a share. After adjusting for stock compensation and special effects, Cisco reported earnings of 79 cents a share, a slight increase from 78 cents a share a year ago. Analyst estimates from FactSet had projected adjusted earnings of 71 cents a share on revenue of $11.9 billion on average.
  • Company executives pointed to the company's cybersecurity portfolio and WebEx videoconferencing business as areas of strength offsetting weakness in enterprise networking. While Cisco's core infrastructure business declined 15%, its security portfolio revenues rose 6%, offsetting some of those losses.
  • Going forward, however, things are anything but clear. Cisco has large exposure to the enterprise and small and medium business segments, which will be hit the hardest in the COVID-19 pandemic. Because the COVID-19 pandemic accelerated late in Cisco's quarter, Cisco's fourth fiscal year quarter ending in July will probably yield better information.

Overall, this has added to even more confusion and muddled prospects for technology companies. So far in earnings, cloud companies such as Google and Microsoft have fared well. Another bright spot is cybersecurity and collaboration tools.