CSCO slips 6% as it revised FY24 outlook lower and cuts 5% of its workforce
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Cisco Systems Inc. (CSCO) reported its Q2 FY2024 earnings, with a decline in revenue of 6% year-over-year at $12.8 billion, falling short of analysts' estimates. The company's non-GAAP EPS was $0.87, down 1% year over year, compared to the estimated $0.84.
While product revenue declined by 9%, service revenue showed a modest growth of 4%. Revenue performance varied by geographic segment, with the Americas down 4%, EMEA down 7%, and APJC down 12%. Despite the overall decline in revenue, Cisco experienced growth in certain areas of its business. The company saw a 3% increase in revenue from its security and collaboration segments, and a significant 16% increase in observability revenue. However, networking revenue declined by 12%.
Total annualized recurring revenue (ARR) at $24.7 billion, up 6% year over year, and product ARR up 9% year over year, also showed progress. The company's remaining performance obligations (RPO) at $35.7 billion, up 12% year over year, and product RPO up 12% year over year, also demonstrated growth.
In terms of profitability, Cisco's gross margin showed improvement compared to the same quarter last year. On a On a non-GAAP basis, the company reported a total gross margin of 66.7%, a 2.8% increase year-over-year. Both product and service gross margins also showed improvement, reaching 65.2% and 70.5%, respectively.
Operating expenses remained relatively flat at $5.1 billion on a GAAP basis, while non-GAAP operating expenses increased slightly to $4.3 billion. GAAP operating income declined by 6% to $3.1 billion, resulting in an operating margin of 24.2%. Non-GAAP operating income decreased by 4% to $4.2 billion, with an operating margin of 33.0%.
Looking ahead to Q3 FY2024, the company expects revenue to be in the range of $12.1 billion to $12.3 billion, with GAAP EPS projected to be in the range of $0.51 to $0.56, and non-GAAP EPS projected to be in the range of $0.84 to $0.86.
The company also cut its full-year revenue guidance for FY2024, projecting revenue to be between $51.5 billion and $52.5 billion, down from the prior range of $53.8 billion to $55.0 billion, and below the estimated $54.33 billion. CSCO also lowered its full-year non-GAAP EPS guidance to a range of $3.68 to $3.74, down from the prior range of $3.87 to $3.93, and below the estimated $3.87.
Cisco Systems announced that it will cut about 5% of its global workforce. The company's CEO, Chuck Robbins, said, As we move to the next phase of our business model transformation, we are taking actions to align our cost structure with our top-line expectations while continuing to invest in our highest growth areas.
The company's revenue growth in security, collaboration, and observability was a positive sign, with total software revenue remaining flat year over year and software subscription revenue up 5% year over year.
Cisco Systems Inc. raised its dividend by 3%, increasing it to $0.40 per share.
Overall, Cisco Systems Inc. reported mixed results for Q2 FY2024, with a decline in revenue and a cut in full-year revenue guidance. However, the company's progress in software and subscription revenue, as well as its focus on its highest growth areas, suggest that it is on track for future growth.