Cisco Surpasses Estimates As It Finally Gets Some AI Action Despite Steepest Revenue Drop Since 2009

On Wednesday, Cisco Systems Inc CSCO reported its fiscal third quarter results and both its top and bottom-line surpassed Wall Street’s estimates. However, this does not change the fact that revenue suffered its steepest decline in 15 years. Like in its previous quarterly report, Cisco attributed the sales softness by consumers setting up the equipment they received during earlier quarters, stating that it expects such installations to be mostly done by the end of the fiscal year. Despite the revenue decline, its stock still went up 8% during extended trading.

Fiscal Third Quarter Highlights

For the quarter ended on April 27th, Cisco reported revenue contracted about 13% as it amounted to $12.7 billion, still surpassing LSEG’s estimate of $12.53 billion.

Adjusted earnings amounted to 88 cents per share, also topping LSEG’s consensus of 82 cents. But net income tanked 41% to $1.89 billion, or 46 cents per share.

Networking revenue which makes the majority of sales also melted as it dropped by 27% to $6.52 billion.

Cisco made a big step forward in the AI direction.

During the quarter, the $28 billion acquisition of security software maker Splunk was completed and although it lowered the adjusted earnings per share by a penny, it also lifted revenue with a $413 million infusion. Over time, Cisco is expected to lower costs. But what’s more important is that Cisco’s acquisition of Splunk means a big boost in its cybersecurity and AI ambitions, as this is its biggest acquisition in its history that spans over a big less than four decades. With Splunk, Cisco is gaining a tool to face off its rivals, like Palo Alto Networks Inc PANW and CrowdStrike Holdings Inc CRWD, and the chance to stay relevant in a universe dominated by vicious tech titans, Microsoft Corporation MSFT, Amazon. Com Inc AMZN and Alphabet GOOGGOOGL-owned Google. Cisco is well-aware it cannot go alone against the giants anymore which is why it joined forces with its long-time rival Microsoft back in 2022. The response of consumers was so good that Microsoft and Cisco expanded their partnership, offering more solutions. Together, Microsoft and Cisco showed that with joint efforts, they can help their customers even better and power their digital transformation.

Cisco Altered Its Fiscal 2024 Guidance

Cisco lifted the full year revenue guidance range it provided in February, as it now expects a figure between $53.6 billion and $53.8 billion.

It also narrowed its adjusted earnings range as it now expects them between $3.69 to $3.71. As for fiscal 2025 revenue, CFO Scott Herren expects low- to mid-single digits growth rate.

Cisco CEO Chuck Robbins expressed his content that Cisco is approaching the end of supply chain challenges it has been struggling with for years. Cisco has undoubtedly been undergoing many changes and although recent quarters have been particularly challenging, Cisco is finally getting some AI action while there are early signs that enterprise spending is starting to recover.

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