Cisco is Rebounding After Positive Forecasts Show a Recovery in Spending - Latest Global News

Cisco is Rebounding After Positive Forecasts Show a Recovery in Spending

(Bloomberg) — Cisco Systems Inc. rose about 5% in extended trading after the company gave solid sales and profit guidance for the current quarter, suggesting that customers are starting to invest in their computer networks again.

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Revenue will be between $13.4 billion and $13.6 billion in the fiscal fourth quarter ending in July, the company said in a statement on Wednesday. This compares to an average analyst estimate of $13.5 billion. Excluding certain items, earnings will be 84 cents to 86 cents per share, versus a forecast of 84 cents.

The outlook sent shares as high as $54.11 before paring back some of the gains. They had previously closed at $49.67, down 1.7% on the year.

Chief Executive Officer Chuck Robbins is continuing his efforts to re-establish Cisco as a network services and software provider, a strategy that included the $28 billion acquisition of Splunk Inc. The shift still hasn’t fully insulated the company from fluctuations in hardware purchases by corporate and telecom company customers.

Cisco reported a 4% increase in orders last quarter – an indicator of future sales – including Splunk. They were otherwise unchanged, but analysts had feared a decline. In the previous period, orders had fallen by 12%.

For full fiscal 2024, revenue will be $53.6 billion to $53.8 billion, compared to an average estimate of $53.6 billion. Revenue will grow by a low- to mid-single-digit percentage in fiscal 2025, Cisco said.

“Customers are consuming the devices shipped in recent quarters in line with our expectations,” Chief Financial Officer Scott Herren said in the statement. “We see demand stabilizing as a result.”

In a conference call with analysts, Robbins said customers will clear their backlog by July.

Cisco’s adjusted gross margin – the percentage of revenue remaining after deducting production costs – is expected to be 66.5% to 67.5% this quarter.

In Cisco’s fiscal third quarter, which ended April 27, revenue fell 13% to $12.7 billion. Profit was 88 cents per share, excluding some items. Analysts estimated revenue of $12.66 billion and profit of 82 cents per share.

Cisco noted progress in improving its relationships with major data center operators. These so-called hyperscalers – companies like Microsoft Corp. and Alphabet Inc.’s Google — pioneered the use of in-house networking equipment, saving Cisco some expenses on cloud computing.

But now Cisco is benefiting from its AI infrastructure spending. According to Cisco’s Herren, the company has a “line of sight” on $1 billion in orders from hyperscalers and others investing in AI.

Cisco completed its acquisition of data processing software maker Splunk during the quarter. This addition increased sales by $413 million.

The Splunk acquisition increases Cisco’s revenue accrual and helps the company shift from relying on one-time purchases to long-term contracts for software and services. Herren said the company now has recurring revenue representing more than half of total revenue and remaining performance obligations of nearly $39 billion.

Splunk CEO Gary Steele becomes Cisco president and focuses on go-to-market strategy. Meanwhile, Jeff Sharritts, the company’s chief customer and partner officer, will depart in mid-July.

“Steele is known for his operational excellence and in this new role he will work closely with Robbins to establish and implement Cisco’s strategic plans and objectives,” the San Jose, California-based company said.

(Updates with CFO comments in 11th and 12th paragraphs.)

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