Cisco plunges after corporate spending slump hurts forecast

CISCO Systems, the largest maker of computer networking equipment, plunged in late trading after giving a disappointing forecast, adding to concern that corporations are reining in their technology spending.

Sales will be US$12.6 billion to US$12.8 billion in the period ending in January, the company said on Wednesday (Nov 15). That was far short of the US$14.2 billion analysts had estimated. Excluding certain items, profit will be 82 US cents to 84 US cents a share, compared with a prediction of 99 US cents.

The shares tumbled as much as 16 per cent in extended trading following the announcement, before recovering somewhat to a 9.3 per cent drop. They had climbed 12 per cent in 2023 to close at US$53.28 on Wednesday.

Cisco’s report shows that slowing orders for networking hardware are taking their toll on growth. Chief executive officer Chuck Robbins is trying to lessen his company’s dependency on one-time sales of equipment by pushing deeper into software and services, such as security. But that transition is not complete enough to cushion Cisco from declines in corporate spending budgets.

The company projected that the weak environment for orders will linger, estimating that “there are one to two quarters of shipped product orders still waiting to be implemented by its customers”.

Still, the company expressed hope that sales would pick up again in the back half of the year.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

“After customers implement large amounts of recently shipped product, we expect to see product order growth rates accelerate in the second half,” chief financial officer Scott Herren said.

Cisco is attempting to further diversify its business by acquiring data-crunching software maker Splunk for US$28 billion, a deal announced in September. The transaction will give Cisco more services to sell to corporate customers, including ones that monitor network health and cybersecurity risks.

The company expects to close that deal by the end of the third quarter of calendar 2024.

Cisco’s adjusted gross margin – the percentage of sales remaining after deducting the cost of production – is expected to be 65 per cent to 66 per cent this quarter. That’s in line with estimates.

Sales will be US$53.8 billion to US$55 billion in fiscal 2024, down from a previous range of as much as US$58 billion, the San Jose, California-based company said. That compares with the roughly US$58 billion analysts had estimated on average, according to a Bloomberg survey.

In Cisco’s fiscal first quarter, which ended Oct 28, revenue rose 8 per cent to US$14.7 billion. Profit was US$1.11 a share, minus some items. That compares with estimated revenue of US$14.6 billion and earnings of US$1.03 a share.

In its previous quarterly results, Cisco got a boost from artificial intelligence (AI) spending. The company said it was winning orders from large companies building up their infrastructure to handle more AI computing. At the time, the company said it had rung up US$500 million worth of orders in this area. BLOOMBERG