Cisco Earnings Preview: Investors await an update on enterprise demand
AInvestWednesday, Aug 14, 2024 1:50 pm ET
2min read
CSCO --

Cisco Systems (CSCO) is set to report its Q4 earnings on Wednesday, with markets expecting earnings of $0.85 per share on revenue of $13.54 billion, reflecting a year-over-year decline in both metrics. Despite a modest recovery in valuation and expectations of a slight beat, analysts remain cautious, noting that the fiscal Q1 2025 estimates might be overly optimistic. Cisco has faced challenges, including sluggish demand in its core networking business, leading to two rounds of layoffs this year, and these factors are expected to weigh on the upcoming results.

Cisco's strategic shift towards higher-growth areas such as cybersecurity and AI, highlighted by its $28 billion acquisition of Splunk, will be a focal point in the earnings report. While the integration of Splunk and the company’s growing subscription revenue base offer long-term potential, the immediate impact on Cisco's financials may still be muted, as the company grapples with ongoing macroeconomic headwinds and a cautious IT spending environment. Investors will be keenly watching for updates on these initiatives and any signs of how Cisco plans to navigate the current challenges.

Given the recent downgrades in profit estimates and mixed channel checks, expectations are tempered for Cisco's Q4 report. Analysts are particularly interested in whether Cisco can maintain its FY25 forecast for low to mid-single-digit sales growth, despite the challenging environment. As the market remains cautious, Cisco's ability to demonstrate resilience through its diversified business model and strategic investments in AI and cybersecurity will be critical in shaping investor sentiment moving forward.

On August 12, Reuters reported that Cisco is expected to announce a second round of layoffs this year, potentially impacting thousands of employees, due to a slowdown in enterprise demand. This follows a similar round of layoffs in February, which Reuters had also accurately predicted. The job cuts, likely to be announced alongside Cisco's fourth-quarter results, are part of the company's shift in focus towards higher-growth areas like cybersecurity and AI, highlighted by its recent $28 billion acquisition of Splunk and its ongoing investments in AI technologies.

Cisco delivered solid Q3 earnings, surpassing both top and bottom-line expectations, and provided upbeat guidance for Q4, reflecting stabilization in customer demand as inventory digestion progresses. The company's revenue was flat sequentially, a significant improvement from prior quarters, and product orders grew slightly year-over-year, bolstered by its $28 billion acquisition of Splunk. This acquisition is expected to drive future growth by expanding CSCO's customer base, particularly in the AI and security sectors.

Despite these positive developments, CSCO's share price dipped after an initial surge, as investors remain cautious due to ongoing macroeconomic uncertainties. CEO Charles Robbins highlighted that customers are still carefully prioritizing their IT budgets, leading to conservative guidance. While the demand environment shows signs of improvement, the overall economic conditions have not dramatically changed, prompting a more tempered market reaction to the earnings report.

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