CSCO sees a "sell the news" reaction following run up into earnings

Cisco Systems (CSCO) reported a solid fiscal Q1 performance, with earnings per share (EPS) of $0.91, surpassing analysts’ expectations of $0.87, and revenue of $13.84 billion, slightly above the forecasted $13.77 billion. Despite a 5.6% year-over-year revenue decline, Cisco’s non-GAAP gross margin of 69.3% exceeded the estimated 67.6%, highlighting strong profitability.

Product revenue fell 9.2% year-over-year to $10.11 billion, with networking revenue plunging 23% to $6.75 billion, aligning with estimates. In contrast, the security segment was a standout, doubling its revenue to $2.02 billion, while collaboration revenue dipped by 3% to $1.09 billion. Geographically, revenue saw mixed results with a 9% decline in the Americas, a 2% decrease in EMEA, and a slight 1% increase in APJC, underscoring regional demand variances.

For Q2, Cisco guided revenue between $13.75 billion and $13.95 billion, slightly above estimates, and non-GAAP EPS in the range of $0.89 to $0.91, beating the consensus estimate of $0.87. Additionally, it raised its full-year FY25 guidance to project revenue of $55.3 billion to $56.3 billion, and EPS of $3.60 to $3.66, surpassing prior forecasts and reflecting steady demand in core segments and anticipated AI-driven growth.

The results reflect Cisco’s continued efforts to optimize its product mix and shift focus towards high-growth areas such as security and AI-driven solutions, an area CEO Chuck Robbins emphasized as a key growth driver, especially with customer demand for AI infrastructure on the rise. Security orders, driven by acquisitions like Splunk, contributed significantly to Cisco’s performance, reinforcing its position in the high-demand cybersecurity space.

The networking and observability segments faced headwinds due to inventory digestion issues and lingering macroeconomic challenges, but Cisco’s management expressed confidence in a gradual recovery driven by robust customer demand for infrastructure upgrades. Cisco’s geographic performance illustrated strong growth potential in APJC, while the Americas and EMEA saw declines, signaling regional challenges that may need addressing in future quarters.

Cisco’s stock, which rallied 18% since September, faced a "sell-the-news" reaction post-earnings, dropping slightly as investors locked in profits amidst high expectations. The stock’s technical levels indicate $57.22 as a key support point, with potential buying interest around the $55-$56 range if further dips occur.

Overall, while Cisco’s Q1 report showcased resilient financials and a promising growth trajectory, investor sentiment reflects a cautious stance, balancing short-term profit-taking with long-term optimism in Cisco’s expansion into high-growth, tech-forward areas.