Cisco Posts Modestly Good Quarter, but Outlook is Soft

Networking kingpin banked $3.1 billion in earnings on $12.4 billion revenue for the first quarter of its fiscal 2017.

Networking hardware maker Cisco Systems, which has been looking for new markets for the past couple of years, released its latest earnings report after the closing bell Nov. 16 and showed profitability, but its guidance for next quarter is worrying Wall Street.

The San Jose, Calif.-based IT giant posted earnings of 61 cents per share, which totaled $3.1 billion on $12.4 billion in revenue for the first quarter of its fiscal 2017.

In its guidance, the company projected revenue next quarter to drop to minus 2 percent to minus 4 percent year over year.

Analysts had been expecting earnings of 59 cents per share on $12.33 billion in revenue, so Cisco "beat the street." The revenue result marked a 1 percent year-over-year increase, which was at the top of the company’s previously provided outlook of between a 1 percent decline and a 1 percent increase year over year.

Cisco, however, said it expects its second fiscal quarter to be weaker. Product divisions, such as collaboration and the data center, were hit by declines during the quarter. Its security products, however, showed strong growth.

CEO Robbins Speaks

"We had a good quarter despite a challenging global business environment and we performed well in our priority areas," CEO Chuck Robbins said on the conference call andin a press statement. "We are leading our customers in their digital transition by providing them with highly secure, automated, and intelligent solutions in the ways they want to consume them. Our innovation pipeline is robust and we are well positioned for the future."

Here are some bullet points on the SEC report:

--The security segment continued to grow at a double-digit rate, with revenue of $540 million equaling growth of 11 percent.

--Data center revenue dropped 3 percent to $834 million.

--The switching segment suffered a 7 percent decline in sales, generating $3.72 billion of revenue.

--The routing segment produced $2.09 billion of revenue, up 6 percent.

--The collaboration segment, which has been growing in recent quarters, suffered a 3 percent sales decline, with $1.08 billion of revenue.

--Wireless revenue dropped 2 percent to $632 million.

--Service provider video, excluding the SP Video CPE business, slumped 2 percent to $271 million.

--Deferred revenue rose 12 percent year over year to $17 billion, driven by subscription-based software.

Forrester Research Speaks

Forrester Research Vice President and Research Director Glenn O'Donnell told eWEEK that "my main takeaway was that there were no real takeaways. Nothing Cisco announced today was much of a surprise. It is in a tough spot regarding growth. Its core products are in slight decline, but it's enough that gains in smaller businesses can't make up the difference. Cisco will suffer some as it goes through its radical -- and necessary -- transition.
Whe asked if Cisco is getting traction in the new markets it needs to curate in order to grow, O'Donnell said "Not yet. Cisco has some promising developments in IoT that could take a long time to develop. The real question here is, 'Can IoT grow to another $20B business for Cisco?'
"This market will be enormous, but I doubt even Cisco will be able to capture that much. Its data center business was growing nicely, but it has plateaued. All of the hardware incumbents face some serious challenges here."

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor of Features & Analysis at eWEEK, responsible in large part for the publication's coverage areas. In his 12 years and more than 3,900 stories at eWEEK, he...