Cisco Is Making Its AI Push Through Realignment

Cisco Systems Inc CSCO reported its fiscal fourth quarter results that revealed declining earnings and revenue. The networking company still managed to surpass estimates despite revenue decline for the third continous time this year. Partnered with Nvidia Corporation NVDA, Cisco remains confident of being equipped to break new ground in AI. In order to secure the new era, Cisco is undergoing a significant restructuring, during which it is realigning its portfolio and trimming its workforce for the second time this year.

Fiscal Fourth Quarter Highlights

For the quarter ended on July 27th, revenue dropped 10% YoY to $13.64 billion, slightly above LSEG’s estimate of $13.54 billion. Sales fell for a third straight quarter, with full fiscal year revenue declining  for the first time since 2020. Security revenue surged 81% to $1.8 billion, but networking revenue slumped 28% to $6.8 billion. Collaboration revenue remained flat at $1 billion.

Net income in the quarter dropped to 45% to $2.2 billion, or 54 cents a share. Adjusted earnings per share fell 24% as they amounted to 87 cents per share, also surpassing LSEG’s 85 cents per share.

Guidance

The revenue decline trend is projected to last for one more period. For the current quarter, Cisco guided for revenue between $13.65 billion and $13.85 billion, down from $14.7 billion reported for previous year's comparable quarter. LSEG guided for $13.7 billion.

The AI Push Continues

Supported by its partnership with Nvidia, Cisco will be investing in key high growth opportunities like AI cybersecurity as it focuses to improve its business efficiencies. Cisco continues to trim its workfroce with the second major round of layoffs this year. Following February’s 5% workforce reduction, Cisco announced another 7% cut.

This is part of Cisco’s restructuring plan that will result in $1 billion in pretax charges to its financial results. During the current quarter, $700 million to $800 million of charges will be recognized, with rest being distributed over fiscal 2025.

Despite sales continuing to drop for third consecutive quarter, Cisco suprassed estiamtes fueled by its  biggest deal ever, the $28 billion acquisition of Splunk, which closed in March and brought increased subscription revenue. Splunk brought in revenue of $960 million. 

The networking giant remains focused on high-growth areas.

Cisco has shifted away from its core business of selling network switches and routers, increasing revenue from software and services through acquisitions. However, CFO Scott Herren insisted that the restructuring plan is more about reallocating as opposed to pursuing cost savings.  

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.